Employee Retention Tax Credit (ERTC) Guide for Small Businesses

September 29, 2023
Dayes Law Firm

The Employee Retention Tax Credit (ERTC) is a refundable payroll tax credit employers can claim for qualified wages paid between March 13, 2020, and September 30, 2021, although different rules apply for recovery startup businesses. But what about the ERTC for small businesses? Can small business owners claim the ERTC?

What Is the ERTC?

The Coronavirus Aid, Relief, and Economic Security (CARES) Act created the ERTC when it was signed into law on March 27, 2020. As the pandemic shaped the economy through shutdowns, social distancing requirements, and supply chain shortages, the IRS updated guidelines for eligibility and claims.

Businesses can receive 50% of up to $10,000 ($5,000) in qualified wages and health plan contributions for each employee in 2020. For 2021, businesses can receive 70% of up to $10,000 ($7,000) per employee per quarter during the eligibility period. If you paid at least $10,000 in wages and health plan contributions for each employee, you could receive up to $26,000 per employee for 2020 and the first three quarters of 2021.

A recovery startup business is a business that opened on or after February 15, 2020, has less than $1 million in revenue, and employs at least one regular employee who isn’t the owner or a family member. For recovery startup businesses, the eligibility period is different. Recovery startup businesses can claim up to $50,000 per quarter during Q3 and Q4 of 2021, for a total of $100,000.

How Does the IRS Define a Small Business for ERTC Claims?

When claiming the ERTC, it helps to know whether your company qualifies as a small business. Knowing the number of full-time employees eligible to claim for your ERTC credit is essential to calculating an accurate ERTC claim for qualified wages.

A small business in 2020 had an average of 100 regular employees or fewer throughout the year. That number increased in 2021 to an average of 500 employees or fewer. A company below this threshold was a small business and could claim wages paid for any regular employee, whether the employee provided services or not.

Why is this distinction important? Large businesses with over 100 employees in 2020 or over 500 in 2021 can only claim qualified wages paid to workers who did not provide services during the applicable period for which the employer files their claim. They cannot claim wages or health plan contributions for workers who continued to work on-site, remotely, or in other work models.

Qualifying for the ERTC as a Small Business

How does a business qualify to file a claim for the ERTC? Businesses that may be eligible to file a claim for the ERTC include:

  • Businesses that had to fully or partially shut down in response to a federal, state, or local government mandate that affected travel, commerce, or occupancy, OR
  • Businesses that saw a decline in gross receipts of 50% or more in 2020 compared to the same quarter in 2019, OR
  • Businesses that saw a decline in gross receipts of 20% or more in the first three quarters of 2021 compared to the same quarter in 2019, OR
  • Businesses that qualify as recovery startup businesses

Contact Our Firm for More Information About the ERTC for Your Small Business

The ERTC for small businesses is a payroll tax credit that can help your small business grow with an injection of cash. For help determining whether your small business qualifies to claim the ERTC, reach out to Dayes Law Firm. Call (866) 567-4510 today or contact us online to schedule your free consultation with an experienced small business tax attorney.