Can a Business Get the ERTC for Employees on Military Leave?

September 11, 2023
Dayes Law Firm

While many people want to think COVID-19 is in the past, busijnesses are still experiencing its economic effects. Plenty of businesses saw significant losses throughout 2020 and 2021. 

Employers are using the Employment Retention Tax Credit (ERTC) to make up for these losses. However, since this credit is fairly new, you may find some details are unclear while filing the ERTC. Military leave employees, for example, continue to collect pay until returning to work. What does this mean for the ERTC? 

What Is the ERTC?

The Employee Retention Tax Credit was created for businesses to reward them for retaining employees on their payroll during the COVID-19 pandemic.

Congress first established this credit through the Coronavirus Aid, Relief, and Economic Security (CARES) Act. To qualify, you must have experienced a 50% loss in revenue in 2020 compared to the corresponding quarter in 2019. For 2021, you must have seen a 20% loss over the same quarter in 2019.

This credit will cover your tax liability, and any leftover credit will go to you as a refund.

What Is Military Leave?

Several laws are in place to protect military members in the workforce. For example, the Uniformed Services Employment and Reemployment Rights Act protects military members from job discrimination. 

Whether an employee is called to active duty or summoned for inactive duty training, they are entitled to pay for the time they are gone. For example, if a full-time employee participates in inactive duty training, you will continue to pay them as a full-time employee for up to 15 days.

ERTC Qualified Wages

To determine whether you can claim the ERTC for military leave wages, we need to review the ERTC’s qualified wages.

Defining Qualified Wages

The IRS explains qualified wages as compensation and qualified health plan expenses paid to employees by an eligible employer. This means qualified wages are taxable employee wages and health costs. 

Not all wages are qualified wages. For example, you cannot claim pay to self-employed individuals for the ERTC.

Qualifications 

So, what wages do qualify for the ERTC claims?

Wages you paid employees during the period that either 1) regular operations were suspended or 2) you experienced significant revenue loss qualify for your ERTC claim. This is true whether or not the employee supplied services.

Under this definition, you can claim wages paid to employees on military leave for the ERTC. Military leave employees, like other employees, can have up to $10,000 of their salary and health benefits claimed under the credit.

Claiming Military Leave Wages

Although the ERTC uses the number of full-time employees you have to determine the size of your business, you can also claim part-time wages under the ERTC, including any military leave wages.

For 2020, you can claim the ERTC for up to 50% of wages, up to $10,000 per employee. For 2021, you can claim the ERTC for up to 70% of wages, up to $10,000 per employee. These rules apply to wages you pay employees on military duty.

Contact the ERC Team at Dayes Law Firm

The process can be complicated when it comes to determining the specific wages you may claim under the ERTC. It’s not too late to file for the ERTC. Here at Dayes Law Firm, our team is ready to help you file for this unprecedented tax credit, just as we’ve helped hundreds of businesses. To start, call 866-567-4510 for a free consultation today