Can a Company Claim the ERC for Workers Who Quit Voluntarily?

September 14, 2023
Dayes Law Firm

The Employee Retention Credit (ERC), also called the Employee Retention Tax Credit (ERTC), is a tax credit businesses can claim for qualifying quarters of 2020 and 2021 if affected by COVID-19 shutdowns or a significant decrease in gross receipts.

What Are Qualified Wages?

Qualified wages for 2020 include wages and qualified health plan costs paid to “some or all” of a company’s employees. Qualified wages for 2020 cover wages and health plan expenses for the whole year, compared to 2021, when qualified wages cover applicable quarters.

Because employee numbers might have changed during these periods, consult with your tax professional about whether you can pro-rate wages paid for part of a quarter. If you aren’t sure because the employees left on their own volition, consult a tax attorney for additional guidance. Here is more about what does apply.

Qualifying for the ERTC

One ERTC employer tip you should know as a business owner or manager is understanding how to qualify for the ERTC. Is your business eligible to claim the credit? Employers eligible to claim the ERTC must have:

  • Been forced to fully or partially close in response to a federal, state, or local mandate that restricted travel, occupancy, or other factors that affected the business operations, OR
  • Significant reduction in gross receipts in 2020 of 50% or more compared to the same quarter in 2019, OR
  • Significant reduction in gross receipts in 2021 of 20% or more compared to the same quarter in 2019

Qualifications required for recovery startup businesses are different from those for established businesses. If your company is a recovery startup business, ask your financial advisor or tax attorney about your options for claiming the ERTC.

How Does the Employee Retention Credit (ERC) Work?

The ERC is a refundable tax credit employers can get back from payroll tax paid during the applicable quarters of 2020 and 2021. Eligible employers can claim up to $26,000 per employee from March 13, 2020, through September 30, 2021.

Employers can claim up to $5,000 per employee for 2020 and up to $7,000 per employee per qualifying quarter of 2021. For most employers, the ERTC claim period ends in the third quarter of 2021. However, recovery startup businesses that opened on or after February 15, 2020, can claim through the fourth quarter of 2021.

Qualifying wages and health plan contributions paid by employers are eligible for the tax credit for small and medium-sized businesses (SMBs) with fewer than 100 employees in 2020 and fewer than 500 employees in 2021. Large employers may only claim wages paid to employees not providing services because of a shutdown or reduced operating capacity.

About the CARES Act and Creation of the ERTC

The Coronavirus Aid, Relief, and Economic Security (CARES) Act, passed on March 27, 2020, created the ERTC to help businesses stay open through the shutdowns and reduced occupancy restrictions by supporting business owners who continued to pay employees whether they were actively providing services for customers or not.

To file for the ERTC, you must submit Form 941-X, the Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund. The statute of limitations or deadline to file is three years from when the original tax return was due. That means for 2020 claims, your adjusted return is due by April 15, 2024, and by the same date in 2025 for 2021 claims.

Contact Dayes Law Firm for More ERTC Information

For more ERTC employer tips and legal advice, reach out to Dayes Law Firm. Call us today at (866) 567-4510 or contact us online to schedule a free consultation with an experienced business tax attorney.