To claim the Employee Retention Credit (ERC), employers must document: (1) 52 consecutive weeks of employment with the employer by a qualified individual, and (2) wages during the last 26 weeks of employment being not less than 80 percent of wages during the first 26 weeks of employment.
The ERC is $1,000 or 6.2 percent of wages paid to the employee over the 52-week period, whichever is less. As a rule of thumb, if weekly wages average more than $310 over the period, ERC is $1,000. If weekly wages average less than $310, ERC must be computed as .062 times total wages for the 52 weeks.
The ERC is an addition to the General Business Credit of IRC Section 38 and follows the rules of Section 38 with a single exception—-any excess business credit resulting from the employee retention credit may not be carried back. It may, however, be carried forward.
An employer may claim either the HIRE provisions or the Work Opportunity Tax Credit (WOTC), but not both. Thus, individual companies must compare the tax benefits associated with the WOTC (maximum annual benefit of $2,400/worker) and the two HIRE provisions in determining which provides the superior tax benefit.