Can an employer claim the ERTC for wages paid to former employees who were rehired?

September 15, 2023
Dayes Law Firm

Accurately calculating your qualified wages under the Employee Retention Tax Credit (ERTC) is necessary to maximize this credit. Many business owners ask: Can I claim the ERTC for wages paid to former employees who were rehired? 

The short answer is yes. You can apply the credit to any qualified wages you paid to employees during the designated periods, regardless of whether they were employed at the beginning. You must only ensure you meet the eligibility criteria for eligible wages and employment dates.  

Which Employees Count Toward the ERTC? 

When applying for the ERTC, you will need to calculate all of the qualifying wages you can claim with this credit. For the 2020 tax year, you can claim a maximum of $10,000 per employee and receive a credit of up to $5,000 per employee. For the 2021 tax year, you can receive credit for up to $21,000 per employee. 

The number of employees you can claim depends on your trade or business size and the tax year you’re claiming. The ERTC distinguishes between small and large businesses. 

In 2020, you were a small business if you had 100 or fewer full-time employees. You can claim any wages paid to full-time employees, totaling up to $10,000 per employee. 

If your business had more than 100 full-time employees in 2020, you can only claim wages for employees you continued to pay while they were not providing services, such as during COVID-19 lockdowns. You can claim up to the amount of wages you paid the employee for working an equivalent duration during the 30 days before their nonservice period. 

Meanwhile, for the 2021 tax season, a small business had 500 or fewer employees, while a large business had more than 500 workers. 

If you were a small business in 2021, according to these guidelines, you can claim all wages paid to full-time employees, up to $21,000 per employee. If you were a large business, you could claim wages paid to employees while they were not providing services, using the same rules as for the 2020 tax year. 

What If an Employer Laid Off and Then Rehired Employees During the Pandemic? 

The purpose of the ERTC was to encourage businesses to avoid laying off employees during COVID-19 shutdowns. To qualify, eligible employers must have kept the same number of workers on staff throughout the pandemic or rehired employees they previously furloughed or laid off. 

Returning to the all-important question here — Can an employer claim the ERTC for wages paid to former employees who were rehired? — the answer is yes, as long as they were employed at some point between March 12, 2020, and January 1, 2022. They do not need to have been employed for the full period if they were subsequently rehired. 

When claiming the ERTC, you must file an amended tax return — Form 941-X, the Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund — for each calendar quarter you paid qualifying wages to employees. As a result, you can accurately account for periods during which employees were not on the schedule from when you rehired them. 

Need ERTC Assistance? Our Team Can Help 

Accurately calculating qualified wages for the ERTC can be complicated. Let our tax attorneys at Dayes Law Firm help you determine your eligibility and even file Form 941-X on your behalf to ensure that no errors delay your credit. Call 866-567-4510 today for assistance, then check out our ERTC employee FAQ page for more information.