If you own a small e-commerce business, you know all too well how the COVID-19 pandemic has affected your bottom line. Many of your customers may have lost their jobs during the pandemic, meaning they had less money to spend with your business. Supply chain disruptions may have impacted your store as well.

Relief is available through the ERTC, a tax credit designed to help businesses recover. Here’s what to know about the ERTC for e-commerce businesses.

What Is the ERTC?

To help support struggling businesses, the government signed the Coronavirus Aid, Relief, and Economic Security (CARES) Act into law in March 2020. As part of the CARES Act, the government also introduced the Employee Retention Tax Credit (ERTC).

If your business is eligible, you can claim up to $5,000 per employee for 2020 and up to $7,000 per employee per quarter for 2021 (a maximum of $21,000 for quarters one and two and a max of $28,000 for the third quarter of 2021).

Businesses can claim the credit for wages paid to employees kept on payroll during the pandemic. They may claim health insurance costs paid for workers as well.

To qualify for the credit, you must meet at least one of these requirements for the tax year for which you’re applying:

  • You had a significant drop in gross receipts (at least 50% compared to the same quarter of the previous year for 2020 and at least 20% for 2021).
  • Your business had to close down, partially or fully, in response to a government order limiting group meetings, commerce, or travel.

Why Aren’t More E-Commerce Businesses Claiming the ERTC?

Many people don’t understand how the ERTC for e-commerce businesses works. They think they don’t qualify, so they don’t even try to claim the credit.

Other business owners don’t try to claim the ERTC because they think they don’t have enough employees to do so. Indeed, you can’t claim the credit for yourself if you’re the only one who works for your business, but as long as you have at least one employee, you could be eligible.

Don’t think you pass the gross receipts test? Remember, you must only prove you had a major drop in receipts during the quarter for which you want to claim the credit. So, if you had a big drop in receipts in quarter one of 2021, but the rest of the year went well financially, you could still claim the credit for that first quarter.

What about the “business closure due to government order” requirement? You might qualify if any of the following apply to you:

  • There was a COVID-19 outbreak in your city, and the government ordered all businesses to close early for cleaning.
  • Your local government ordered all non-essential businesses to close down.
  • You could no longer hold in-person group meetings.
  • The pandemic caused one of your suppliers to close, which impacted your business.

How to Claim the Credit for Your Small Business

E-commerce business owners who think they’re eligible for the ERTC can claim the credit by filing Form 941-X, Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund with the IRS. 

Call Our Firm If You Need Help Claiming the ERTC

The ERTC for e-commerce businesses can serve as an invaluable lifeline if you’ve struggled during the pandemic. If you have questions about your eligibility for the credit, reach out to Dayes Law Firm at (800) 503-2000 for a free consultation.