Can Businesses Claim the ERTC for Employees on Sabbatical?

November 11, 2023
Dayes Law Firm

Sabbaticals can give employees a much-needed break to recharge and de-stress, allowing them to return to work ready to tackle the challenges of their jobs. Many employees chose to take sabbaticals during the COVID-19 pandemic to spend time with loved ones, go back to college, or escape from all the chaos at work.

If your business offers sabbaticals to employees, you may wonder whether you can claim the Employee Retention Tax Credit (ERTC) for them. Below, find ERTC guidance on the topic, as well as tips for claiming the credit.

What Is an Employee Sabbatical?

A sabbatical gives employees extended time off work for personal growth, travel, or study. Sabbatical programs can last a few weeks to several months, depending on the employer. Some sabbatical programs are unpaid, while others pay employees their regular wages. Commonly, employers pay wages at a reduced rate while employees are on sabbatical.

Sabbaticals may sound similar to a leave of absence, but they’re not the same thing. An employee may take a leave of absence to tend to a health problem, care for an elderly parent, or give birth to a child. State and federal laws may require employers to give leave to employees, whereas sabbatical programs aren’t legally required.

Can You Claim the ERTC for Employees Who Went on Sabbatical?

Being able to claim the ERTC for employees on sabbatical depends on whether you continued paying them. If your sabbatical program is unpaid, you can’t claim the credit for an employee during the time they were on sabbatical.

However, if you continued paying an employee on sabbatical, either at their full wage or a reduced rate, you may be able to claim the credit for those wages. According to IRS guidance, businesses with fewer than 500 employees may claim the ERTC for all employees, whether they were providing services at the time of payment or not. Large employers can only claim the ERTC for employees they continued paying yet for whom they were not providing services.

If you’re unsure whether you can claim the credit for employees on sabbatical, contact Dayes Law Firm for ERTC guidance.

Is Your Business Eligible for the ERTC?

Both for-profit businesses and nonprofit, tax-exempt organizations can qualify for the credit if they paid workers during the pandemic. You will also have to meet at least one of the following requirements:

  • You had a major drop in gross receipts (at least 20% for 2021 and at least 50% for 2020).
  • Your business had to close, fully or partially, because of a government order (for example, you own a restaurant that had to shut down its dining room to help limit the spread of the virus).

Note that if you took a Paycheck Protection Program (PPP) loan, you still qualify for the ERTC. The IRS originally disqualified businesses that took a PPP loan from claiming the credit, but that’s no longer the case.

Claiming the ERTC

If you’re eligible, your business can claim up to $5,000 per employee for 2020 and up to $7,000 per employee per quarter for 2021.

To claim the credit, you must file Form 941-X, Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund with the IRS. You’ll need to provide details about how much in wages you paid to employees, as well as evidence that you qualify.

Learn More About This Valuable Credit

It can be tough to know whether you qualify for the ERTC and which wages are covered by the credit. If you have more questions about the credit or its eligibility requirements, reach out to us for ERTC guidance.

Call Dayes Law Firm at (800) 503-2000 for your free consultation now.