ERTC for Technology Startup Businesses

September 20, 2023
Dayes Law Firm

As a tech startup, you should take advantage of all available tax credits and financial benefits to help your business thrive. Even though the pandemic has faded into the rearview mirror for many, it’s not too late to claim one of its largest tax credits: the Employee Retention Tax Credit (ERTC). 

Tech startups may even have special access to funds under the ERTC if they qualify as Recovery Startup Businesses. Here’s what you need to know about the ERTC for tech startups.

The ERTC and “Recovery Startup Businesses”

When launched in March 2020, the Employee Retention Tax Credit aimed to encourage businesses to maintain the same number of employees despite pandemic-related shutdowns. However, the tax credit morphed over time, slowly expanding to provide more valuable benefits and include more types of businesses. 

As a tech startup, you may not have met the requirements of experiencing a “significant decline in gross receipts” compared to 2019 because your business wasn’t around in 2019. Instead, you may qualify for employee retention credits as a Recovery Startup Business. 

The American Rescue Plan Act of 2021 expanded the ERTC to provide additional support for “recovery startups.” Your business may be considered a Recovery Startup Business under the ERTC if it was founded after February 15, 2020, and you had $1 million or less in average annual gross receipts for each year you claim the credit (2020 and/or 2021). 

These rules expand the ERTC for most tech startups founded at the beginning of the pandemic. If they apply to you, you can claim up to $5,000 per employee in 2020 and up to $7,000 per employee per quarter in 2021. Recovery Startup Businesses also have a unique opportunity to claim qualified wages in Q4 of 2021, a period which other businesses cannot claim. 

Claiming the ERTC and the R&D Tax Credit

Your tech company may also be able to claim the Research & Development (R&D) Tax Credit, which has been around since 1981. If you’re eligible for the ERTC and the R&D Tax Credit, you may claim both, potentially reducing your tax liability further. 

The R&D Tax Credit can give you up to 12 to 16 cents of federal and state tax credits for every qualified dollar and create a dollar-for-dollar reduction in your income tax liability for qualified domestic expenses. This tax credit is available to any organization that engages in activities to develop new or improved products, software, formulas, techniques, inventions, or processes. 

As a tech startup, you may be eligible to claim this tax credit for expenditures relating to resolving technological challenges. Your eligibility for the ERTC generally does not impact your eligibility for the R&D Tax Credit. 

Is It Too Late for Tech Startups to Claim the ERTC? 

It is not too late to claim the ERTC for 2020 and 2021. You can file amendments to your tax returns with Form 941-X to retroactively claim this credit. The deadline for the 2020 tax year is April 15, 2024, while the deadline for the 2021 tax year is April 15, 2025.

Seek Assistance with the ERTC for Tech Startups

Do you need help applying for the Employee Retention Tax Credit or understanding your eligibility? The tax attorneys at Dayes Law Firm have extensive experience helping tech companies navigate this tax credit. We’d be happy to walk you through your eligibility and fill out Form 941-X on your behalf to prevent errors from delaying your credits. 

Call us today at 866-567-4510 or fill out our contact form for more information about the ERTC for tech startups.