How Does the ERTC Compare to Unemployment Benefits?

October 19, 2023
Dayes Law Firm

When the COVID-19 pandemic hit, employers struggled to keep their businesses open and had to lay off employees. Similarly, employees had to quit to protect themselves or care for their loved ones from COVID-19. In these times of financial distress, the government stepped in.

The Employee Retention Tax Credit (ERTC) and unemployment benefits were vital resources to businesses and employees in 2020. Now that the pressure of the pandemic has eased, are they still related? 

At Dayes Law Firm, we’re here to answer your questions and help you file for the ERTC. 

What Is the ERTC?

The Employee Retention Tax Credit (ERTC) is a refundable tax credit the government introduced in 2020 through the Coronavirus, Aid, Relief, and Economic Security (CARES) Act. The tax credit refunds eligible employers a portion of the wages they paid employees in 2020 and 2021. This tax credit incentivized employers to keep employees on their payroll. 

In 2021, the Consolidated Appropriations Act altered the eligibility requirements of the ERTC to include more businesses. Additionally, it extended the credit through 2021. Later, the ERTC was cut short by the Infrastructure Investment and Jobs Act, so employers could only claim the ERTC for the first three quarters of 2021. 

According to the IRS, eligible employers include businesses that ran in 2020 and 2021, including tax-exempt organizations, that can pass one of two tests:

  • The gross receipts test
  • The suspension of operations test

The gross receipts test requires you to prove your business saw a significant decline in gross receipts when comparing your 2020 and 2021 quarters to the revenue you made in 2019. For 2020, there must be a 50% decline, while in 2021, there must be a 20% decline to pass.

The suspension of operations test requires you to prove your business had to shut down, partially or fully, in response to a government order.

If you pass either test, you may be eligible to collect 50% of employee wages up to $10,000 for 2020 and up to 70% of the same for 2021. 

What Are Unemployment Benefits?

Unemployment benefits provide cash benefits on the state and federal level to those unemployed by no fault of their own. The benefits an employee can collect and for how long vary from state to state, but they are generally available for 52 weeks.

How Are the ERTC and Unemployment Benefits Related?

As employee retention credits helped employers, the government provided the Pandemic Unemployment Program to assist employees temporarily. While many people who were out of work during COVID-19’s peak would not qualify for unemployment traditionally, this program covered more people. 

For example, this program assisted self-employed workers and independent contractors who would not traditionally be able to collect unemployment. Employees could also collect unemployment if they contracted COVID-19, had to stay home to take care of COVID-19, had to quarantine, or needed to quit for any other reason related to COVID-19.

These benefits included:

Now that Pandemic Unemployment Assistance has ended, the ERTC’s relation to unemployment is to prevent it. As a business owner, you can retroactively file for the ERTC and collect your refund within a year of filing. You can then use those funds to continue paying employees, preventing the need to downsize, which often leads to the need for unemployment benefits. 

Learn More About the ERTC With Dayes Law Firm

Now that you know how the ERTC and unemployment benefits are related, you can retroactively file for the ERTC with the help of our ERTC recovery team at Dayes Law Firm. Call 866-567-4510 today for a free consultation