Can a Permanently Closed Business Qualify for the ERTC?

August 11, 2023
Dayes Law Firm

The ERTC, also known as the Employee Retention Credit (ERC), has been a lifesaver for many business owners nationwide. If a business qualifies, it can claim credits worth thousands of dollars for every employee on the payroll in 2020 and 2021.

An eligible employer can claim the ERTC if it partially suspended operations due to a government order. 

How Business Closures Affect ERTC Eligibility

The pandemic has taken a heavy toll on thousands of businesses since 2020. Restaurants, bars, daycare centers, and other businesses that serve the public were especially hard-hit.

Businesses that shut down temporarily (either partially or fully) because of a government order qualify for the ERTC. For instance, if you own a restaurant and had to close your dining room, you’d likely qualify for the credit.

However, if you permanently closed and sold your business, you may not qualify for the ERTC. This is because you need to have kept staff on your payroll to claim the credit.

If you paid employees during certain quarters of 2020 or 2021 and have since closed down, you might be able to retroactively claim the credit for those quarters. Employers who didn’t pay workers while closed, either temporarily or permanently, don’t qualify for the ERTC.

If you’re currently closed but intend to reopen your business, you may be eligible to claim the credit. The deadline for the 2020 ERTC is April 15, 2024, and if you want the credit for any calendar quarters in 2021, you have until April 15, 2025. If you don’t apply for the credit by then, you’re no longer eligible for the ERTC.

Another Way To Qualify for the ERTC

You may also be able to claim the ERTC for a closed business if your gross receipts dropped below a certain amount in 2020 or 2021. For 2020, your gross receipts must have dropped by at least 50% compared to the same calendar quarter in the prior year. For 2021, you must have had at least a 20% drop in receipts compared to the same quarter.

Recovery startup business owners may qualify for the credit too. To qualify, your business must have:

  • Opened on or after February 15, 2020
  • Not exceeded $1 million in gross receipts for 2020

Keep in mind that you must have also continued paying employees to qualify for the credit. If you temporarily or permanently closed your business and didn’t keep paying employees, you can’t claim the credit, even if your receipts dropped below the above amounts.

How to Claim the ERTC if Your Business Is Eligible

Claiming the ERTC for a closed business is fairly straightforward as long as you qualify. If you’re not sure whether you’re eligible, talk to your tax professional before applying. A tax attorney from Dayes Law Firm will also be happy to speak with you about your eligibility status.

Once you’ve confirmed that you qualify, you can claim the ERTC by filling out Form 941-X, Quarterly Federal Payroll Tax Return.

We’ll Help You Understand Whether You Qualify for the ERTC

Have you shut down your business and don’t know if you’re eligible to claim the ERTC? As long as you kept employees on payroll before closing, you may qualify to claim the credit for the quarters in which you continued to pay wages.

At Dayes Law Firm, we’ve helped dozens of business owners learn whether they qualify for the ERTC. To learn more about how to claim the ERTC for a closed business, call us at (800) 503-2000 for a free consultation.