Are There Limitations on Employees Covered Under the ERTC?

October 20, 2023
Dayes Law Firm

If you were one of the many employers who struggled during 2020 and 2021 but retained employees on your payroll, you may qualify for ERTC benefits. 

When running a business, you work with many people on different tiers. Can you claim all employee wages under the ERTC? Are there limitations?

Yes, there are some limitations on the type of employees for the ERTC. Keep reading to find out what those are.

What Is the ERTC?

The Employee Retention Tax Credit is a refundable tax credit the government offers businesses that stayed open in 2020 and 2021, while keeping employees on their payroll despite the economic instability during the pandemic. 

The Coronavirus Aid, Relief, and Economic Security (CARES) Act introduced the ERTC in 2020. To incentivize employers to keep employees on their payroll, the ERTC offered to refund a portion of wages paid to employees. 

Then, in 2021, the Consolidated Appropriations Act extended the ERTC through 2021, but the Infrastructure Investment and Jobs Act later amended this, only allowing employers to claim the first three quarters of 2021 unless they operate a recovery startup business. 

More recently, the IRS issued a suspension of the ERTC. Consequently, they will not process new applications through December 2023. That being said, when the suspension ends, you want to be prepared with all the right information.

Who Are Qualified Employers?

Before determining what employees for the ERTC you can claim, you must prove your eligibility as an employer. To be a qualifying employer, you must have been open during 2020 and 2021. Secondly, you must have seen a significant decline in gross receipts or experienced a shutdown in response to a government mandate.

If you meet the above qualifications, you can claim the ERTC. 

What Are Qualified Wages?

The next question, then, is who you can claim it for. Employees can claim 50% of up to $10,000 per employee for 2020 wages and 70% of the same for 2021 wages.

However, the employees you can claim the ERTC for depend on the size of your business. A small business of fewer than 100 employees in 2020 can claim all employee wages and healthcare benefits. For 2021, businesses with 500 or fewer employees qualify as small businesses.

For larger businesses, you may only claim wages for employees you kept on payroll despite their inability to provide services. The Families First Coronavirus Response Act required many employers to continue paying employees on sick leave related to COVID-19. Large businesses can claim these wages under the ERTC.

Limitations of the Type of Employees for the ERTC

As an employer, there are a few types of employees you cannot claim under the ERTC.

Self-Employed Individuals

If you are self-employed, you have to pay your own wages and taxes. However, the IRS does not allow self-employed individuals to claim their wages under the ERTC. 

Independent Contractors

Since independent contractors are not on your payroll, you cannot claim what you pay to independent contractors under the ERTC. 

Teleworking Employees

While it’s possible for virtual teams to claim the ERTC, it can be more difficult. Some teams use their shift to a teleworking environment for the suspension of operations test, but if this transition was seamless, you will not pass the test.

Maximize Your ERTC Benefits With Experienced Tax Lawyers

Understanding the limitations of the type of employees for the ERTC is just the start. Claiming the ERTC can be a long, complex process. When you work with our ERTC recovery team, we’ll guide you through the process. Contact Dayes Law Firm at 866-567-4510 to schedule a consultation.