Can Businesses Claim the ERTC for Employees on Disability? 

October 9, 2023
Dayes Law Firm

Did you know that small businesses can still apply for the Employee Retention Tax Credit (ERTC) by filing amended payroll tax returns for eligible quarters in 2020 and 2021? 

If you haven’t claimed this tax credit, you could be missing out on up to $26,000 per employee. However, the tax benefit isn’t necessarily available for all of your employees. The rules regarding the ERTC are complex. 

Here is information on tax credit eligibility related to employees on disability leave during the qualifying quarters. 

Determining Eligibility for the ERTC 

Also referred to as the Employee Retention Credit (ERC), the ERTC is available to businesses that experienced a significant decline in gross receipts in 2020 or 2021, or were subject to a full or partial suspension in operations due to the pandemic.

Eligibility is determined on a quarterly basis, and small businesses can receive a percentage of paid wages for each qualified employee based on meeting the ERTC employee guidelines. To date, the IRS has received 3.6 million business claims since the initiation of the program in March 2020.

On September 14, the IRS announced “an immediate moratorium through at least the end of the year on processing new claims for the pandemic-era relief program” as a result of increased fraud concerns. 

IRS Commissioner Danny Werfel noted in the announcement, “The IRS is increasingly alarmed about honest small business owners being scammed by unscrupulous actors, and we could no longer tolerate growing evidence of questionable claims pouring in,” and urged that when it comes to claiming the credit, “businesses should seek out a trusted tax professional who actually understands the complex ERC rules.”

If you work with a tax professional on your Employee Retention Tax Credit application, you’ll have the knowledge and resources of a team who thoroughly understands the ERTC and tax code on your side and will be less likely to turn in an incorrect claim to the credit.

Does the ERTC Cover Employees on Disability Leave? 

The short answer to whether an employer can receive ERC tax benefits for workers on disability leave is “not exactly.” The benefits for disability leave and the ERC fall are considered two different programs, though there may still be some form of relief for employers. 

An employer can claim the FFCRA tax credit for employees who were on paid sick leave or COVID-related medical leave for the period between April 1, 2020, and March 31, 2021. FFCRA is short for Families First Coronavirus Response Act. 

The FFCRA is a completely separate program from the ERTC and was designed to benefit employees affected by COVID-19 or who had to take care of family members who had contracted the virus. It provides credit for a portion of wages for sick and family leave. 

The ERTC (or ERC), on the other hand, is part of the CARES Act (Coronavirus Aid, Relief, and Economic Security), and it is meant to provide tax credits to businesses who elected to keep employees on payroll despite an adverse economic impact due to Covid. 

Tax Credits for Disability Leave and the American Rescue Plan Act 

In 2021, the American Rescue Plan Act (ARP) was passed to cover wages for sick and family leave. Like the FFCRA, the ARP also provides employers with a tax credit for wages paid as a result of sick leave or family leave. The ARP is a broader program than FFCRA and ERC, as it is aimed at not only helping businesses directly, but also providing stimulus payments and unemployment benefits at the individual level. 

The Rule Against Double-Dipping 

Companies that claim the ERTC cannot claim those same wages under paid family leave. This would be considered “double-dipping,” and it is not allowed by the IRS. 

Tax Credits for Employees or Patrons With Disabilities 

The IRS provides additional relief for employers who accommodate workers or patrons with disabilities outside of the other benefits available for those on disability leave. Eligibility is limited to businesses with less than $1 million in revenue or fewer than 31 employees. The compensation is a tax credit equivalent to the amount of expenditures incurred to make accommodations for disabilities. 

Contact an Experienced Tax Attorney for Help Claiming ERTC Funds 

The rules regarding ERTC are complex, and it’s easy for small businesses to fall out of compliance if they are unfamiliar with the ever-changing rules. For a free consultation or to discuss any other FAQ, please call Dayes Law Firm at 866-567-4510.