What is the Non-Refundable Portion of the Employee Retention Credit?

What is the Non-Refundable Portion of the Employee Retention Credit?

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The Employee Retention Credit (ERC) is a valuable tax incentive introduced to provide financial relief to businesses due to challenging times, such as the COVID-19 pandemic. While the ERC offers significant benefits, employers must understand its various aspects to maximize its full potential. 

One crucial element of the ERC is the non-refundable portion, which requires careful consideration. In this article, we’ll explore the concept of the non-refundable portion of the Employee Retention Credit, its significance, and how it impacts businesses.

Defining the Non-Refundable Portion 

The non-refundable portion of the Employee Retention Credit refers to a specific component of the credit that is not eligible for a refund. In simpler terms, it’s the amount of credit a business can use to offset its federal payroll tax liability but can’t receive as a cash refund. If the credit exceeds the employer’s payroll tax liability, the excess portion cannot be refunded or carried forward to future periods.

Calculation and Application 

Employers must first determine their eligible wages and qualified healthcare expenses for each calendar quarter to calculate the non-refundable portion of the Employee Retention Credit. These wages and costs are subject to certain limitations outlined in the legislation and IRS guidance. Once the eligible amount is established, the business can claim a credit equal to a specified percentage of those qualified wages and expenses.

The non-refundable portion is then determined by comparing the total credit amount with the employer’s federal payroll tax liability for the applicable period. Only the amount equal to the liability can be utilized if the credit exceeds the liability, and the excess becomes non-refundable.

For example, if a company is eligible for a $7,000 credit for a particular quarter, but its payroll tax liability is only $5,000, the non-refundable portion would be $2,000. This means that the business can offset $5,000 of its payroll tax liability using the credit, but the remaining $2,000 can’t be refunded or carried forward.

Significance for Businesses 

Understanding the non-refundable portion is crucial for businesses seeking to leverage the ERC effectively. While the credit can provide substantial relief by reducing tax liabilities, the non-refundable aspect doesn’t offer an immediate cash benefit.

Businesses must carefully evaluate their payroll tax liabilities to determine how much of the credit they can utilize effectively. This assessment is particularly vital for companies that have experienced significant reductions in revenue or were forced to suspend operations.


The non-refundable portion of the Employee Retention Credit plays a critical role in how businesses can benefit from this tax incentive. While the credit can significantly reduce federal payroll tax liabilities, the non-refundable component prevents companies from receiving cash refunds or carrying forward excess credit to future periods.

Employers should carefully assess their eligibility, calculate qualified wages and expenses, and evaluate their payroll tax liabilities to make the most of the Employee Retention Credit. By understanding the non-refundable portion and its impact on cash flow, businesses can effectively plan their financial strategies and take advantage of the relief provided by the ERC.

Contact Bottom Line Concepts to ensure accurate calculations and compliance with the latest legislation regarding the Employee Retention Credit and its non-refundable portion. 

Schedule your free 15-minute consultation call today.

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