Are There Benchmarks Businesses Must Meet to Gain the ERTC?

October 17, 2023
Dayes Law Firm

As a business owner in 2020 and 2021, you saw (and felt) how businesses, especially small businesses, suffered during the COVID-19 pandemic. Businesses were downsizing; some were even shutting down. The government introduced the Employee Retention Tax Credit (ERTC) to prevent further damage to the economy. 

While many businesses benefited from this credit already, some owners are still confused about the exact qualifications for the ERTC. What ERTC metrics must you meet as a business owner to claim the tax credit? 

Dayes Law Firm is here to answer your ERTC questions and provide guidance throughout this process. 

What Is the ERTC? 

The Employee Retention Tax Credit (ERTC) is a COVID-19 relief measure the government introduced in 2020 through the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Originally, employers taking advantage of the Paycheck Protection Program (PPP loans) could not claim the ERTC. 

However, in 2021, the Consolidated Appropriations Act modified the ERTC to include businesses that took out PPP loans, as long as they didn’t claim employee wages they paid with PPP loans under the ERTC. 

The purpose of the ERTC is to reward employers for keeping employees on their payroll during the economic stress COVID-19 caused and to help them financially recover.

However, in September, the IRS announced “an immediate moratorium through at least the end of the year on processing new claims for the pandemic-era relief program” as a result of increased fraud concerns. 

IRS Commissioner Danny Werfel noted in the announcement, “The IRS is increasingly alarmed about honest small business owners being scammed by unscrupulous actors, and we could no longer tolerate growing evidence of questionable claims pouring in,” and urged that when it comes to claiming the credit, “businesses should seek out a trusted tax professional who actually understands the complex ERC rules.”

You may want to work with a tax professional on your Employee Retention Tax Credit application to be less likely to turn in an incorrect claim to the credit.

Does My Business Need to Meet Any Benchmarks to Qualify for the ERTC?

With the government’s modifications to the ERTC, it can be hard to follow all eligibility requirements. “Benchmarks” refer to specific measurements of your business’ performance, usually comparing you to your market’s competitors. 

While ERTC qualifications do take into account your revenue, your current business performance is irrelevant. ERTC metrics only account for your revenue and business performance through 2020 and 2021 compared to 2019. 

While there are no benchmarks your business needs to meet currently, there are certainly eligibility requirements you need to meet when claiming the ERTC.

Who Are Eligible Employers? 

How do you know if you’re eligible for the ERTC as an employer? First, you must be an employer who operated a business during 2020 and 2021, including tax-exempt charities and organizations. 

Additionally, you need to pass one of two tests:

  • Gross receipts test
  • Government order test

The gross receipts test has different requirements for 2020 and 2021. For 2020, you must have seen at least a 50% decline in gross receipts when comparing quarters to your revenue in 2019. For 2021, you must have seen at least a 20% decline in gross receipts when comparing the corresponding quarters to 2019.

The government order test requires you to prove you had to shut down regular operations partially or fully in response to a government mandate.

What Are Eligible Wages?

Your business’s eligible wages depend on its size. A small business has 100 or fewer employees in 2020 or 500 or fewer in 2021. Small business eligible wages include all wages, health insurance, and benefits you paid employees while you are an eligible employer. You can collect 50% of up to $10,000 per employee per quarter in 2020 or 70% of the same in 2021. 

Eligible wages for larger employers include any wages you paid an employee unable to provide services due to COVID-19. 

Claim the ERTC with Help from Experienced Tax Attorneys 

Now that you know the ERTC eligibility metrics, you can file for the ERTC. However, you don’t need to do it alone. Let the experienced tax attorneys at Dayes Law Firm guide you through this complex process. Call 866-567-4510 to begin with a free consultation today.