Is Employee Retention Credit Taxable in California?

What is Employee Retention Credit (ERC)?

The Employee Retention Credit (ERC) is a refundable tax credit for employers equal to a certain percentage of up to a specific amount of wages paid to employees. It was introduced as part of the CARES Act in response to the COVID-19 pandemic.

How do I apply for the Employee Retention Credit?

Employers can claim the ERC by reporting their total qualified wages and the related health insurance costs for each quarter on their employment tax returns.

Who is eligible for the Employee Retention Credit?

To be eligible for the ERC, employers must have carried out a trade or business during the calendar year. Additionally, they either had to have operations fully or partially suspended due to government orders related to COVID-19 or experienced a significant decline in gross receipts.

Is the Employee Retention Credit taxable on the federal level?

No, the Employee Retention Credit doesn’t count as income and isn’t subject to federal income tax. However, it’s crucial to consult with a tax professional regarding state taxes, as the rules can vary.

What are some long-term strategies for employee retention beyond the ERC?

Long-term strategies for employee retention can include offering competitive salaries and benefits, creating an engaging work environment that promotes job satisfaction, and providing opportunities for professional development.

The Role of the ERC in Employee Retention Strategies

The ERC can be an integral part of a broader strategy to retain employees, especially in the face of financial hardship or uncertainty. By reducing the overall tax burden, it can free up resources that employers can reinvest in their workforce in the form of raises, bonuses, or additional benefits.

Remember: You can Qualify For Up To $26,000 Per Employee

Find Out How Much Money You Qualify For, Click Here And Fill Out the Form

Conclusion – Is Employee Retention Credit Taxable in California

Navigating the complexities of tax laws can be challenging. However, understanding how the Employee Retention Credit works and whether it’s taxable in your state is crucial for making the most of this provision. In California, as far as we know until the time of writing this article, the ERC is non-taxable. Yet, I strongly recommend consulting with a tax professional to get the most accurate, up-to-date information. Remember, maintaining a robust employee retention strategy can contribute to the long-term success and sustainability of your business.


1. Is the Employee Retention Credit taxable?

On the federal level, the Employee Retention Credit is not taxable. However, the rules can vary by state, so it’s best to consult with a tax professional in your area to understand the specific implications for your business.

2. How can the Employee Retention Credit help my business?

The ERC can significantly reduce the overall tax burden for your business, freeing up resources that you can use to invest in your employees and operations. It can be a crucial tool for businesses facing financial hardship due to COVID-19.

3. Can I claim the Employee Retention Credit if my business hasn’t been directly impacted by COVID-19?

To be eligible for the ERC, your business must have been fully or partially suspended due to government orders related to COVID-19 or experienced a significant decline in gross receipts. It’s best to consult with a tax professional to determine your eligibility.

4. How much can I claim with the Employee Retention Credit?

The amount you can claim with the ERC depends on several factors, including the number of employees you have, the amount of qualified wages you’ve paid, and the specific calendar quarter.

5. How can I incorporate the Employee Retention Credit into my employee retention strategy?

You can use the resources freed up by the ERC to invest in your employees. This could involve raises, bonuses, increased benefits, or investments in training and professional development programs.


  1. California’s Department of Tax and Fee Administration website ( will typically post up-to-date guidelines and regulations related to state taxes.
  2. Internal Revenue Service website ( This site provides information about federal taxes, and sometimes discusses how federal tax laws interact with state ones.


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