How Does the ERTC Differ for Small Versus Large Businesses?

September 19, 2023
Dayes Law Firm

Although the Employee Retention Tax Credit (ERTC/ERC) was first implemented back in 2020, some business owners may still have questions about whether or not they qualify to apply for the tax credit. For instance, an employer may not know if the size of their business or the number of employees they have on staff impacts their ability to claim the ERTC. Thankfully, there is some pretty clear guidance about small businesses versus larger corporations applying for the credit. 

ERTC Differences Related to Business Size

The Employee Retention Tax Credit is a refundable payroll tax credit for qualified wages paid to employees in certain calendar quarters of 2020 and 2021 – the height of the COVID-19 pandemic. When it comes to the number of employees you have on staff, there are requirements that business owners should be aware of if they want to apply for the ERTC.

Whether your business is considered a small or large employer depends on specific thresholds that differ depending on whether you’re claiming for 2020 or 2021. The 2020 ERTC threshold is 100 full-time employees. Meanwhile, the number of employees allowed for your business to be considered a small employer increased to 500 or fewer full-time staff members for 2021. 

Provided your company employed at least one person, besides yourself, during the ERTC qualifying period of wages paid from March 13, 2020, through December 31, 2021, you may be eligible to apply for the Employee Retention Tax Credit. 

S Corporations and the ERTC

But what about corporations, and specifically S corporations and ERTC eligibility? Things get a little tricker here, but there are still some pretty clear rules you can follow to be sure of your business’s ability to claim the tax credit. 

If you’re both an S corporation shareholder and an employee with wages that go on payroll taxes, your salary and employee benefits generally won’t count toward an ERTC claim. However, if you are one of the business owners, the S corp might be able to claim the benefit on your wages if the following are true:

  • You’re not a major shareholder (wages of minor shareholders who own less than 2 percent of the business may qualify)
  • The S corp pays you a salary that you report on your personal tax return
  • You are not related to the majority owner (relatives in this case may include parents, siblings, children, nieces, nephews, in-laws, and others)
  • You count as a full-time employee, which means you work at least 30 hours a week or 130 hours/month for the business, according to the IRS definition

For the most part, shareholders who own more than 50 percent of S corps usually are not eligible to claim the ERTC on their wages. But there are exceptions, and we would recommend working with an ERTC team like the one at Dayes Law Firm for specific instances involving corporations to consider your unique circumstances and determine potential eligibility. 

The bottom line is this: if your business experienced a significant decline in gross receipts in 2020 or 2021 as compared to 2019, and its operations had to fully or partially cease due to a government mandate, it might be eligible to claim the Employee Retention Tax Credit. 

The guidelines get more complex when it comes to the business size and the ERTC does differ for small businesses versus large corporations. But a trusted, experienced tax attorney can help you work out the specifics of your situation. 

Dayes Law Firm ERTC Team

At Dayes Law Firm, we can offer a free, no-obligation consultation to discuss the ERTC needs of your business. Our team of tax professionals can work with you to determine the particulars of your eligibility and how your business size and type can impact your potential Employee Retention Tax Credit claim. 

Dayes Law Firm and its partners have extensive experience when it comes to helping businesses with the ERTC. Our clients have already received over $25 million in funds thanks to ERTC claims, and there are still months to go before businesses can no longer claim the credit. 
Please give our team a call or fill out the form on this page to contact us and see how we can assist you and your business. We look forward to hearing from you and seeing how we can help your business get the ERTC refund it may be entitled to. Call now to learn more!