Delivering Aid to Businesses through the Payroll Tax System: The Case of the Employee Retention Credit

Lucas Goodman

National Tax Journal, 2023, vol. 76, issue 2, 439 - 463

Abstract: During the COVID-19 pandemic, Congress enacted the Employee Retention Credit (ERC), a payroll tax credit paid to firms experiencing pandemic-related hardship. This paper uses administrative tax data to study the claiming of this credit. While firms have claimed nearly $100 billion of the credit, we find take-up to be highly imperfect even in contexts where nearly universal eligibility is expected. We find that the credit was mostly paid as a lump sum after the end of the quarter. Finally, we find that the progressivity of the ERC depends on whether the incidence of the ERC fell on business owners or employees.

Date: 2023
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