How Did the ERTC Adapt to Support Virtual Teams?

October 18, 2023
Dayes Law Firm

Many workplaces shifted to a virtual setting in 2020 and 2021 to accommodate lockdown orders or to follow Centers for Disease Control (CDC) guidelines. Some are asking whether employers can claim the ERTC, or the Employee Retention Tax Credit, with a virtual team. Claiming the ERTC for virtual workers may be more complex than claiming it for an onsite team, depending on your circumstances. 

What Is the ERTC? 

The Coronavirus Aid, Relief, and Economic Security (CARES) Act of 2020 introduced the first version of the Employee Retention Tax Credit (ERTC), through which the government incentivized employers to keep employees on their payroll by offering them a refundable tax credit. At this point, employers who already collected Payment Protection Program (PPP) loans could not claim the ERTC.

However, with the Consolidated Appropriations Act of 2021, ERTC eligibility expanded to include businesses that claimed PPP loans, as long as employers didn’t claim wages paid with PPP loans under the ERTC. This Act also extended the ERTC through 2021. 

The Infrastructure Investment and Jobs Act ended the ERTC early, limiting it to the first three quarters, except for recovery startup businesses.

How Do You Qualify for the ERTC?

To qualify for the ERTC, your business, virtual or otherwise, must pass one of two tests:

  • The gross receipts test
  • Suspension of operations test

The suspension of operations test requires a partial or full shutdown of your operations in response to a government mandate. 

On the other hand, the gross receipts test asks you to prove that you experienced a significant decline in gross receipts due to the pandemic. Compare your gross revenue for each quarter in 2020 and 2021 with their corresponding quarters in 2019. 

For 2020, there must be at least a 50% decline in gross receipts to pass this test. For 2021, there must be at least a 20% decline in gross receipts. 

How Does the ERTC Support Virtual Teams?

Even if your team worked virtually in 2020 and 2021, you could be eligible for the ERTC if you meet the above requirements. However, claiming the ERTC for virtual workers may make it difficult to meet some requirements. 

Suspension of Operations Test

Unfortunately, if your virtual team could operate with the same level of efficiency as they could in person, you likely won’t pass the suspension of operations test. Similarly, if your team existed virtually before the pandemic and never had to make that transition, COVID-19 did not interrupt your regular operations. 

The suspension of operations must have had a nominal impact on your business. If you experienced a partial shutdown or struggled to move to a virtual platform, you must provide evidence that it resulted in at least a 10% loss of revenue. 

Gross Receipts Test

Being a virtual team should not interfere with the gross receipts test. As long as you meet the requirements for revenue loss, you can pass this test.

Qualified Wages

Another thing to consider about your virtual team is what portion of their wages qualify. For small businesses, qualified wages include all wages paid to each employee and healthcare expenses. If your business exceeded 100 employees in 2020 or 500 in 2021, your qualified wages only include those of workers who could not provide services because of COVID-19.

If your team was virtual during this time, more employees were likely able to provide their regular services.

In September, the IRS announced “an immediate moratorium through at least the end of the year on processing new claims for the pandemic-era relief program” as a result of increased fraud concerns. 

IRS Commissioner Danny Werfel noted in the announcement, “The IRS is increasingly alarmed about honest small business owners being scammed by unscrupulous actors, and we could no longer tolerate growing evidence of questionable claims pouring in,” and urged that when it comes to claiming the credit, “businesses should seek out a trusted tax professional who actually understands the complex ERC rules.”

Claim the ERTC With the Help of Skilled Tax Attorneys

If you want to claim the ERTC for virtual workers’ wages, contact Dayes Law Firm. We’ve helped hundreds of businesses claim the ERTC, and yours could be next. Call 866-567-4510 today to schedule a free consultation with the ERTC recovery team.