Employee Retention Tax Credit Basics

The employee retention tax credit is a form of tax relief available to employers who offer their employees a certain number of paid leave days per year. The number of days required varies by state.

The goal of the employee retention tax credit is to encourage employers to offer paid leave to their workers and help reduce turnover in their workforce. This can be especially helpful for small businesses that may not have the resources to offer paid time off (PTO) or other benefits like health insurance or retirement plans.

Employers can claim this credit for up to $1,250 per year for each eligible employee in 2020 and 2021, up from $1,000 in 2019.

Who Can Apply For A Employee Retention Tax Credit?

The employee retention tax credit is available for employers with fewer than 50 full-time equivalent employees who offer paid leave to their employees. The credit can be claimed against any federal income tax liability, including payroll taxes and self-employment taxes. It is also refundable, which means that it can offset all or part of the employer’s Social Security and Medicare (FICA) tax liability.

The credit is available to employers who offer paid leave to their employees, as well as those who provide any combination of paid leave, unpaid leave that meets certain requirements and employer-provided child care. The credit applies to all types of paid leave: sick time, vacation time or personal days off.

The credit is available only to employers who have a written policy in place that provides eligible employees with paid leave. The policy must be for at least two weeks per year and can be provided in the form of sick days, vacation time or personal days off. In addition, employers who provide workers with paid leave must also allow those employees to use their leave for any reason other than health issues related to pregnancy, childbirth or related medical conditions (i.e., bonding time after childbirth).


The employee retention tax credit is a valuable tool for employers looking to retain their employees. It can be used as an effective recruitment and retention tool, but only if employers are aware of the credit’s existence and take the steps necessary to qualify.

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