Employee Retention Credit - 2020 vs 2021 Comparison Chart

Businesses still have time to claim the Employee Retention Credit. Businesses continue to have challenges with the COVID-19 pandemic. The federal government established the ERC to provide a refundable employment tax credit to help businesses with the cost of keeping staff employed.

Eligible businesses that experienced a decline in gross receipts or were closed due to government order and didn't claim the credit when they filed their original return can take advantage by filing adjusted employment tax returns. For example, businesses that file quarterly employment tax returns can file Form 941-X, Adjusted Employer's Quarterly Federal Tax Return or Claim for Refund PDF, to claim the credit for prior quarters.

The ERC is scheduled to expire December 31, 2021. However, as mentioned above, employers may still claim the credit for prior quarters by filing an applicable adjusted employment tax return within the deadline set forth in the corresponding form instructions. For example, if an employer files a Form 941, the employer still has time to file an adjusted return within the time set forth under the "Is There a Deadline for Filing Form 941-X?" section in Form 941-X, Adjusted Employer's Quarterly Federal Tax Return or Claim for Refund.

For more information, see Correcting Employment Taxes.

The ERC has been amended and extended two separate times after it was originally enacted as part of Coronavirus Aid, Relief, and Economic Security Act (CARES Act) in March of 2020 by the Taxpayer Certainty and Disaster Relief Act of 2020 (Relief Act) and the American Rescue Plan (ARP) Act of 2021.

  CARES Act of March 2020 Relief Act of 2021 American Rescue Plan Act of 2021
Period for qualified wages paid March 13 – December 31, 2020 Extended: January 1 – June 30, 2021 Extended: July 1, 2021 – December 31, 2021
Eligible employer Any employer operating a trade, business, or a tax-exempt organization, but not governments, their agencies, and instrumentalities.

Expanded to include certain governmental employers that are:

  • Organizations described in section 501(c)(1) and exempt from tax under section 501(a), and
  • Colleges or universities or whose principal purposes is to provide medical or hospital care
No changes
Employment tax offset Employer's portion of Social Security tax No change Changed to employer's portion of Medicare tax
Eligibility requirements

Employer must experience:

  • full or partial suspension of operations due to government order due to COVID-19 during any quarter, or
  • significant decline in gross receipts (beginning when gross receipts are less than 50% of gross receipts for the same calendar quarter in 2019 and ending in the first calendar quarter after the calendar quarter in which gross receipts are greater than 80 percent of gross receipts for the same calendar quarter in 2019)

Amended decline in gross receipts to be defined as quarter where gross receipts are less than 80% of the same quarter in 2019.

Added an alternative quarter election rule giving employers ability to look at prior calendar quarter in 2021 and compare to the same calendar quarter in 2019 to determine whether there was a decline in gross receipts.

Provided a rule for employers not existence in 2019 to allow employers that were not in existence in 2019 to determine whether there was a decline in gross receipts by comparing the calendar quarter in 2021 to its gross receipts to the same calendar quarter in 2020.

Amended to make the credit available to "recovery startup businesses," employers who otherwise do not meet eligibility criteria (full or partial suspension or decline in gross receipts)

"Recovery startup businesses" are employers:

  • That began carrying on any trade or business after February 15, 2020,
  • That had average annual gross receipts under $1,000,000 for the 3-taxable-year period ending with the taxable year that precedes the calendar quarter for which the credit is determined, and
  • Do not meet the other eligibility criteria 
Percent of qualified wages eligible for credit
  • 50% of qualified wages ($10,000 per employee for the year including certain health care expenses)
  • 100 or fewer average full-time employees in 2019, wages paid to employees providing services and not providing services are qualified wages
  • Greater than 100 average full-time employees in 2019, wages paid to employees not providing services are qualified wages
  • Increased maximum to 70% ($10,000 per employee per calendar quarter including certain health care expenses) for qualified wages paid between January 1 and June 30, 2021
  • 500 or fewer average full-time employees in 2019, wages paid to employees providing services and not providing services are qualified wages
  • Greater than 500 average full-time employees in 2019, wages paid to employees not providing services are qualified wages
  • Maximums unchanged
  • "Severely financially distressed employers" may treat all wages as qualified wages during the calendar quarter in which the employer is severely financially distressed
  • "Severely financially distressed employers" are employers with gross receipts that are less than 10% of the gross receipts in a calendar quarter as compared to the same calendar quarter in 2019.
  • No change for small employers qualified wages
  • Provides that employers that were not in existence in 2019 may use the average number of full-time employees in 2020 to determine whether the employer had greater than 500 average full-time employees
Credit maximums Maximum credit of $5,000 per employee in 2020 Increased the maximum per employee to $7,000 per employee per quarter in 2021
  • Maintained quarterly maximum defined in Relief Act ($7,000 per employee per calendar quarter, resulting in a total of $28,000 per employee in 2021)
  • "Recovery startup businesses" are limited to a $50,000 credit per calendar quarter