Update on November 18, 2021: With the passage of the Infrastructure Bill, the ERC program has been cut short. The program has now expired on September 30, 2021, which means that in tax year 2021, the maximum tax credit available to an employer (per employee) is $21,000.
An important exception: if you own/operate a Recovery Startup Business (a business that started after February 15, 2020 and has gross receipts under $1M) you may still be eligible for ERC through Q4 of 2021. Recovery Startup Businesses are the only businesses that may claim ERC through the end of the year.
The Employee Retention Credit (ERC) was created by the federal government to help ease the financial hardship caused by the COVID-19 pandemic on small businesses. Employers who are eligible for ERC, can receive tax credits in exchange for qualified wages and health plan expenses paid to (and on behalf of) employees. But once you determine that you’re eligible for ERC, how much can you expect to claim as credit? Luckily, we’ve got this handy ERC Calculator to help you figure out the credit amount you can expect. In this post we’ll walk you through how to use it to calculate your ERC amount for 2020 and 2021.
Determining ERC eligibility
This is a complicated one, so we put together a whole post on how to determine whether you qualify for ERC for 2020 and 2021. Head over there to evaluate your status. Once you know you are eligible, you can get to work on calculating your credit (which we walk you through in this post).
Calculating your 2020 ERC
Let’s start with 2020. For 2020, qualified wages and expenses are capped at $10,000 per employee for the year and the credit is up to 50 percent of that amount, so you can claim up to $5,000 worth of credits per employee (again, for the entire year). To figure out exactly how much you can claim, use the calculator!
1. Go to the Calculator.
2. Click File > Make a Copy at the top right hand of your screen. Now you have your own version of the calculator.
3. Click on the tab at the bottom that is labeled 2020.
4. First, you want to determine the eligibility of your business for ERC within that quarter. The calculator can help with this, and this post walks you through precisely how to do it.
5. Only change values in the light grey cells; do not change any of the values in the cells that are white, because those cells contain formulas, and altering the formulas will cause your calculations to result in errors. The content that appears in the light grey cells is simply example content, feel free to alter it to values relevant to your business.
6. Once eligibility is determined, scroll down to the ERC Credit Calculation section and start entering qualified wages and health plan expenses. Here are a few things you should know:
| For 2020, Q2 qualified wages and expenses include those paid out between March 13, 2020 and June 30, 2020 | Q3 qualified wages and expenses include those paid out between July 1, 2020 and September 30, 2020 | Q4 qualified wages and expenses include those paid out between October 1, 2020 and December 31, 2020 |
The following are restrictions on wages that qualify for ERC:
a) You cannot include wages paid with PPP or EIDL as qualified wages
b) You cannot include wages paid out to employees who are related to the business owner as qualified wages
c) You cannot include wages that have already been claimed for WOTC or any other tax credit as qualified ERC wages
7. Add your inputs to the grey cells, and let the calculator do the work!
Calculating your 2021 ERC
In 2021, the opportunities for ERC increase. Unlike in 2020, when ERC is calculated in aggregate for the year, in 2021, you calculate each quarter separately. In 2021, qualified wages and expenses are capped at $10,000 per quarter and the credit amount can be up to 70 percent of those wages/expenses. This means that you can claim up to $28,000 worth of credits per employee for the year. Turn again to the trusty ERC calculator to work out how much you should be claiming in credits. Here’s how.
1. Go to the Calculator.
2. Click File > Make a Copy at the top right hand of your screen. Now you have your own version of the calculator.
3. Click on the appropriate tab at the bottom of the spreadsheet. For 2021, here are the time periods that correspond with each quarter:
| Q1 | Q2 | Q3 | Q4 |
| January 1 – March 31 | April 1 – June 30 | July 1 – September 30 | October 1 – December 31 |
4. Don’t forget to work out your eligibility before starting your ERC calculation.
5. Remember that you should only change values in the light grey cells; do not change any of the values in the cells that are white, because those cells contain formulas, and altering the formulas will cause your calculations to result in errors. The content that appears in the light grey cells is simply example content, feel free to remove and alter it to values relevant to your business.
6. Scroll down to the Employee Retention Credit Calculation section and start entering qualified wages and health plan expenses.
Also, the same restrictions for qualified wages apply in 2021:
a) You cannot include wages paid with PPP or EIDL as qualified wages
b) You cannot include wages paid out to employees who are related to the business owner as qualified wages
c) You cannot include wages that have already been claimed for WOTC or any other tax credit as qualified ERC wages
7. Enter employee names, wages and health plan expenses. Your credit amount will appear at the bottom of the column marked Credit. That’s it!
Want to know about the Employee Retention Credit? Check out the full ERC Guide here.
