Can a Start-Up Business Receive the ERTC?

July 10, 2023
Dayes Law Firm

The ERTC — also called ERC or Employee Retention Credit — is a refundable tax credit designed to help business owners mitigate the impacts of the COVID-19 pandemic. Eligible employers can calculate their qualified wages based on their employees to request financial aid.

Many businesses that take advantage of this credit began before 2020. But what about the businesses that started during 2020 or later? Are they still eligible for an ERC credit for their businesses?

The short answer is “it’s possible,” though different rules may apply. At Dayes Law Firm, we aim to help you understand whether your business qualifies and how to take advantage of this tax credit.

What is a Recovery Start-Up Business?

To take advantage of the ERC credit for your business, you must qualify as a recovery start-up business.

A recovery start-up business meets the following criteria:

  • It began operations after February 15, 2021
  • It has less than $1 million in annual gross receipts for the three-year taxable period you want to claim credit for

To determine the second criterion, you would look at your revenue for 2020. You would multiply that number by 12, then divide the result by your months of operation in 2020. If the number you reach is under $1 million, you qualify.

How Does a Recovery Start-Up Business Take Advantage of the ERC?

The standard ERC rules state that if a business experienced a significant drop in gross receipts between 2019 and 2020/2021 — or if a business experienced a full or partial suspension of operations — then it’s eligible for the tax credit. If you didn’t start your business until 2020, however, you obviously don’t have receipts from 2019, in which case the rules are slightly different:

  • 2020: If you want to claim credit for 2020, you must have experienced either full or partial suspension.
  • Q1 and Q2 2021: Like 2020, you can qualify if your business experienced full or partial suspension due to the pandemic restrictions. In addition, if your revenue for these quarters was less than 80% of that from the same quarter in 2020, you can apply for the credit.
  • Q3 2021: This quarter has similar qualification metrics as the previous quarters. Unlike before, however, you may be able to request aid even without meeting the qualifications simply because you’re a recovery start-up business.
  • Q4 2021: Only recovery start-up businesses can qualify for the ERC during this quarter. You don’t need to prove business suspension or loss of revenue to qualify; so long as you meet the recovery start-up business requirements, you can apply for this tax credit.

The standard ERC amount is calculated differently based on the year:

  • 2020: You can claim up to 50% of qualified wages, with a cap of $10,000 per employee for the year.
  • 2021: You can claim up to 70% of qualified wages, with a cap of $10,000 per employee each quarter.

As a recovery start-up business, you can’t claim more than $50,000 per quarter.

Request More Information From Dayes Law Firm

If you started your business in 2020, you may have faced unexpected hardships. Taking advantage of the ERC can help reduce the strain and keep your business running.

Do you need help applying for the ERC credit for your business? If so, contact Dayes Law Firm. We have helped other businesses like yours determine their eligibility and figure out how to apply for this credit. Call us today at 800-503-2000 or fill out our contact form to request a free consultation. We’re prepared to provide assistance to your business.