Businesses that Overlooked Qualifications for the ERTC

August 25, 2023
Dayes Law Firm

If you’re a business owner who thinks they don’t qualify for the Employee Retention Tax Credit (ERC or ERTC), you might miss a huge opportunity. Before you make any assumptions, consider the eligibility criteria to determine if you qualify.

Businesses that overlooked ERTC eligibility have until April 15, 2024, to file an ERTC claim for 2020, and until April 15, 2025, to file a claim for 2021. You don’t want to have any missed opportunities or regrets. The ERTC team at Dayes Law Firm can help you confirm your qualifications for the ERTC. 

What Are the Benefits of the ERTC?

The Employee Retention Tax Credit is a type of tax relief to assist businesses with the financial loss they suffered from COVID-19. Many businesses had to shut down partially or completely or experienced a drop in demand and revenue due to the COVID-19 pandemic.

The ERTC incentivized businesses to keep employees on their payroll by reimbursing a portion of eligible employee wages.

In 2020, businesses could claim the ERTC to cover 50% of employee wages and health benefits with a $10,000 limit per employee. In 2021, it covered up to 70% of employee wages, with the same $10,000 limit per employee.

The qualifications for the ERTC changed to open up eligibility to more employers, confusing some business owners and leading to overlooked ERTC businesses.

2021 Changes in Qualifications for the ERTC

When the government introduced the ERTC in 2020, the CARES Act laid out strict qualifications. It immediately disqualified businesses if they’d already collected a PPP loan. They also had to prove a significant loss of gross revenue or a suspension of regular business operations due to a government order.

In 2021, Congress passed the Consolidated Appropriations Act, which allowed businesses to pursue both PPP loans and claim the ERTC on their tax returns simultaneously. The Act also changed the definition of small businesses, defining employers with 500 or fewer employees as small business owners, where the previous number had been 100.

How to Determine ERTC Qualification

To assess eligibility for the ERTC, two tests are available. The specifics of each test vary depending on which year you are filing for. Ensure you’re assessing your business’ eligibility for both years, as not qualifying for one does not automatically mean you don’t qualify for the other.

Reduced Gross Receipts Test

Using the reduced gross receipts test, you must prove a significant decline in gross receipts. You can calculate this revenue loss by quarter in 2020 or 2021 compared to your corresponding quarter in 2019. 

In 2020, you must prove you experienced a 50% loss in revenue. In 2021, this changed to 20% for each calendar quarter. For businesses that were not yet open in 2019, 2020 may act as a comparison instead. 

Government Order Test

The government order test refers to a business partially or fully suspending regular business activity due to a government order. This is where some employers mistakenly overlook ERTC if they don’t think COVID-19 impacted their business operations enough to qualify.

This did not have to be a full shutdown. If you had reduced hours or staff, limited or delayed supply, or had to accommodate your layout for social distancing, you may qualify for ERTC under the government order test.

Don’t Miss Out on the ERTC and Other Credits: Contact a Tax Attorney

Determining eligibility and filing for the ERTC is complex. If you are one of the ERTC businesses that missed the opportunity so far, you may be missing out on tax credits.

Contact a Dayes Law Firm tax attorney at (800) 503-2000 to schedule a free consultation today to see if your business qualifies for the ERTC.