Clearing Up the Most Confusing ERTC Concepts

September 28, 2023
Dayes Law Firm

The Employee Retention Tax Credit (ERTC) is a refundable tax credit for employers who continued to pay employee wages through the peak of the pandemic in 2020 and 2021, as well as for recovery startup businesses that opened after February 15, 2020. Many common misconceptions could deter business owners from claiming the ERTC. Learn more about these myths below.

Common ERTC Myths

To qualify for the ERTC, a business must meet one of the following criteria:

  • Been subject to a full or partial suspension of operations in response to a government mandate, OR
  • Experienced a decline in gross receipts of 50% or more in 2020 compared to the same quarter in 2019, OR
  • Experienced a decline in gross receipts of 20% or more in the first three quarters of 2021 compared to the same quarter in 2019, OR
  • Qualified as a recovery startup business

Many business owners feel they need to meet all factors to be eligible or don’t fully understand the qualifications as they pertain to their business. Here is more about common misunderstandings regarding the ERTC.

Essential Businesses Don’t Qualify To Claim the ERTC

One of the biggest ERTC misconceptions is that essential businesses don’t qualify for the ERTC. Because essential businesses never shut down, many business owners believe their companies don’t qualify for the ERTC.

However, your company may still qualify based on a decline in gross receipts or whether government mandates against your suppliers made it difficult to perform your business operations as required. Supply chain issues and reduced revenue could make your business eligible.

Businesses That Had an Increase in Revenue Don’t Qualify for the ERTC

Some industries saw an increase in revenue, such as PPE manufacturers and restaurants that already had a strong takeout and delivery presence in their local markets. However, if your business faced full or partial shutdowns, or if you qualify as a recovery startup business, you may still be able to claim the ERTC.

Additionally, if your business is part of a controlled group of businesses, you must follow IRS aggregation rules for the group as a whole to determine whether your business is eligible to claim the ERTC.

Only Small Businesses Can Claim the ERTC

Small businesses can claim the credit for all employees paid during the eligible period. Large employers may only claim the ERTC for employees who didn’t provide services during the eligible period.

In 2020, a company with over 100 employees qualified as a large employer. This number increased to over 500 employees for 2021. Companies under this threshold are counted as small employers.

Supply Chain Disruptions Don’t Affect ERTC Eligibility

If your business can prove that supply chain disruptions affected your gross revenue or normal operations, you may be able to claim the ERTC. While usually more difficult to prove, the IRS will review your documentation and determine whether your supply chain interruption claim qualifies your business to claim the ERTC.

Businesses That Opened During the Pandemic Can’t Claim the ERTC

Recovery startup businesses are businesses that opened after February 15, 2020. Because the decline in gross receipts test compares to revenue in 2019, many newer business owners believe their companies don’t qualify. However, recovery startup businesses may compare 2021 receipts to their 2020 revenue to determine eligibility.

Contact Dayes Law Firm for Help Determining ERTC Eligibility

These are just some of the most common ERTC misconceptions. For help determining your ERTC eligibility, reach out to Dayes Law Firm. Call (866) 567-4510 today or contact us online to schedule a free consultation with an experienced business tax attorney.