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Congress created the employee retention tax credit to incentivize employers to keep paying staff after business activity dropped due to the COVID-19 pandemic.
For 2020, the maximum employee retention credit was $5,000 per employee and for 2021, the maximum amount was $21,000 per employee, experts said.
The credit is paid to eligible employers, not employees.
A $26,000 government payout to employees who worked all throughout the pandemic? It sounds too good to be true, and in this case, the saying holds: It is.
Despite claims circulating online, individual workers aren’t making thousands of dollars in employee retention tax credits.
"Americans who worked through the pandemic are being paid up to $26,000 by qualifying for the Employee Retention Credit," claimed a video shared Jan. 6 on Facebook.
The post’s caption reemphasized the claim: "You may qualify for a retention credit if you worked through the pandemic. Over $20,000 is being granted (Click to find out if you're entitled to cash)."
This post was flagged as part of Facebook’s efforts to combat false news and misinformation on its News Feed. (Read more about our partnership with Meta, which owns Facebook and Instagram.) If you click on the post, it sends you to a page with links to other pages, including two directed at employers and one that leads to a Yahoo search page for "ERC Credit."
The post itself is misleading. Employees who worked throughout the worst of the COVID-19 pandemic don’t qualify for federal payments up to $26,000. Such claims are inaccurate and reflect a misunderstanding of the employee retention tax credit.
The employee retention credit is paid to eligible employers, not employees, said Stefan Richter, an Indiana University doctoral student who has been studying the credit. Congress created the employee retention credit in 2020 to encourage employers to keep their employees, Richter said.
The employee retention credit was available to employers who kept paying staff even when they could not open their businesses or saw their business activity drop significantly because of the pandemic.
Neil Buchanan, a law professor at the University of Florida’s Levin College of Law and a tax policy expert, said the idea was that it would be better to keep people on payroll until the economy could reopen, rather than to initiate layoffs.
"It is expensive and burdensome for employers to fire people and rehire them, and employees might not be available to rehire when the time comes," Buchanan said. "Continuing to pay wages to employees rather than cutting them off also meant that those employees did not have to draw from unemployment insurance, apply for SNAP benefits, and so on." (SNAP stands for Supplemental Nutrition Assistance Program.)
Generally, Richter said, employers are eligible to receive the credit if they paid qualified wages from March 13, 2020, to Sept. 30, 2021, and met certain other criteria. These included having had part of their operations suspended because of COVID-19 government restrictions or having had business activity decline significantly compared with the same quarter in 2019.
For 2020, the maximum employee retention credit was $5,000 per employee and for 2021, the maximum amount was $21,000 per employee, Richter said.
"The commonly cited ‘$26,000’ figure is the sum of these two amounts," he said.
Richter cautioned taxpayers to get information about tax-related matters from the IRS website and to discuss such matters with a tax adviser when possible.
A Facebook video claimed that "Americans who worked through the pandemic are being paid up to $26,000 by qualifying for the Employee Retention Credit."
Experts said that claim was inaccurate and added that the employee retention credit is paid to eligible employers, not employees.
For eligible employers, the credit applies to eligible wages paid from March 13, 2020, to Sept. 30, 2021. It can be claimed retroactively, however.
We rate these claims False.
Facebook post, Jan. 6, 2023
Email interview with Neil Buchanan, a law professor at the University of Florida’s Levin College of Law and an expert on tax policy, Jan. 13, 2023
Email interview with Stefan Richter, a doctoral student at Indiana University, Jan. 16, 2023
Email interview with Bridget Stomberg, a professor at Indiana University’s Kelley School of Business, Jan. 16, 2023
Yahoo Finance, Do I need to pay taxes on the Employee Retention Credit? Jan. 7, 2023
SmartAsset, How the employee retention tax credit works, Nov. 9, 2022
IRS, COVID-19-related Employee Retention Credits: General information FAQs, accessed Jan. 12, 2023
Inc., The employee retention credit is a great deal — but beware 'ERC Mills,' Dec. 20, 2022
IRS, Employee retention credit, accessed Jan. 17, 2023
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