How Can Businesses Track Employee Counts for the ERTC?

October 27, 2023
Dayes Law Firm

Your business may be eligible for an Employee Retention Tax Credit worth up to $26,000 per employee, but you’ll need to have clear records of your employee counts in 2020 and 2021 to calculate this credit appropriately. 

The amount you can claim depends on whether your business was considered a “small” or “large” business under ERTC guidelines. But what happens if your employee count changed in 2020 and 2021? Review these tips to track and manage changes in employee counts while calculating the ERTC.

Review Your Employment Records 

Just like when you submit any part of your tax returns, you’ll need records backing up the information you relay in your ERTC application.

Your first step is to review your records and make sure they are accurate and comprehensive for 2020 and 2021. You’ll need clear documentation of your full-time employees and the qualified wages you paid them. You’ll also need proof of how you allocated any qualified health plan expenses. 

Aside from these employee records, you’ll also need records showing that you qualify for the Employee Retention Tax Credit (ERTC), otherwise known as the Employee Retention Credit (ERC). Eligible employers experienced a significant decline in gross receipts and suspended business operations due to a government order. 

Focus on One Year at a Time

Once you’ve gathered your receipts and documentation, set aside 2021 and focus only on 2020. The eligibility criteria are different from year to year. 

For 2020, you qualify if your gross receipts were less than 50% of the gross receipts from the same quarter in 2019. For 2021, your gross receipts only needed to be less than 80% of the gross receipts from 2019. 

You also need to review your employee counts for each year to determine whether to file your business as a “small” or “large” business for ERTC purposes. Small businesses can claim all the qualified wages paid to their full-time employees, whether those employees worked during lockdowns or not. Large businesses can only count the wages paid to employees who were not providing services during lockdowns.

For ERTC purposes: 

  • In 2020, small businesses had 100 or fewer full-time employees 
  • In 2021, small businesses had 500 or fewer full-time employees 

Break Each Year Into Quarters 

You will need to submit an amendment to your tax returns for each quarter you qualify for the ERTC. You can claim this tax credit for all four quarters of 2020 and for Q1, Q2, and Q3 of 2021. 

If your employee counts changed significantly over the course of these quarters, you may sometimes qualify as a small business, and other times be considered a large business. Be sure to take these criteria into account while filing. Don’t assume that your business was a large business during every quarter; filing as a small business may give you more credits overall. 

You’ll need to determine the total qualified wages paid to employees during each quarter. Business owners are only eligible to claim the tax credit for quarters where they had a significant decline in gross receipts compared to the same quarter in 2019. 

Work with the ERTC Team at Dayes Law Firm

If your business’s employee count fluctuated significantly during the pandemic, or you’re having trouble translating changes for your ERTC application, you may want to work with a tax attorney. ERTC attorneys can review your financial records and verify whether you qualify for the Employee Retention Tax Credit for each quarter. Then, they can help you calculate your credits based on qualified wages. 

At Dayes Law Firm, our tax attorneys are well-versed in the ins and outs of ERTC eligibility. Call us today at 866-567-4510 for a free consultation