Can You File ERTC Claims for High-Income Employees? 

November 19, 2023
Dayes Law Firm

The Employee Retention Tax Credit (ERTC) has been a valuable lifeline for millions of small businesses. Thanks to this federal tax credit, companies can claim up to $26,000 in funds for each employee on payroll in 2020 and 2021. 

Before claiming ERTC funds, it’s important that businesses understand the eligibility requirements and limitations, especially for high-income positions. For companies with high-level and executive positions on the payroll, this article will shed some light on what you should consider when filing an ERTC claim. 

What is the ERTC? 

You’re probably already somewhat familiar with the basics of the ERTC, so we will outline it only briefly. The ERTC is part of the CARES Act (Coronavirus Aid, Relief, and Economic Security), and it was designed to provide a financial incentive for businesses that kept their staff on payroll during the COVID-19 pandemic. 

Eligibility is determined for each of the quarters in 2021 and 2020, so a business could find itself eligible for one, several, or all quarters during these years. A business can be eligible if it meets one of these requirements: 

  1. Suffered a significant decline in gross revenue, totaling at least 50% in 2020 or 20% in 2021 
  2. Experienced a full or partial suspension of operations because of a government-related mandate 

The ERTC was introduced simultaneously with PPP loan forgiveness, so there has been some confusion (and some rule changes) about the interplay between PPP funds and the ERTC. Originally, businesses that were granted loan forgiveness were not eligible for the ERTC, but that restriction has since been removed. 

Also, take note that you might also see ERTC referred to as the Employee Retention Credit or ERC. The two terms are synonymous. 

ERTC for Highly Paid Employees 

Once you determine that your business is eligible for the Employee Retention Tax Credit ERTC, it is important that any claim you file complies with IRS guidelines. While no one wants to leave money on the table, attempting to claim more funds than you are entitled to can result in audits, penalties, and fines, even if the mistake is innocent. Working with an experienced tax attorney or professional can ensure you claim all of the funds you can legitimately receive without violating any ERTC guidelines. 

For companies with high-income positions, the rules are the same, though the process of determining which wages are eligible could be slightly different. 

Before submitting an ERTC claim, be sure to consider the following: 

  • Wage limits: Remember that the maximum that can be claimed for the qualified wages of each employee is $26,000 across all eight quarters. This cap is based on a percentage of wages up to $10,000 paid per quarter. If you have higher-income positions, it is likely that you will hit this cap and potentially be eligible for the maximum.

The important thing to remember is that wages paid beyond the $10,000 per quarter are not eligible for the credit.

  • Eligibility criteria: It’s also important to remember that eligibility is determined quarterly. Therefore, any high-income employee must be on staff during the quarter you are attempting to claim, and your business must have met one of the eligibility requirements discussed above.
  • Overall compensation: Qualified wages include salary and health plan expenses. They do not include stock options or other forms of equity compensation. Therefore, do not attempt to add this compensation to your calculations. 

Contact an Experienced Tax Attorney To File an ERTC Claim 

Though the ERTC for high paid employees functions much like any ERTC claim, it is vital that you work with a trusted tax professional to help you file an accurate claim and take advantage of the full credit for which you are eligible. Please contact Dayes Law Firm for a free consultation today.