How to Get the ERTC When Your Pandemic Workforce Fluctuated

August 21, 2023
Dayes Law Firm

If your businesses suffered losses or a workforce fluctuation due to the COVID-19 pandemic, you may qualify for the Employee Retention Tax Credit (ERTC) program. Many businesses experienced severe financial losses during the pandemic yet continued to support their workforces. If this scenario applies to you, you may be eligible for tax credits. 

What Is the ERTC?

The Employee Retention Tax Credit (ERTC), also shortened to ERC, is a refundable payroll tax credit program empowering small and medium-sized businesses that suffered losses during the pandemic but continued to pay wages. Eligible businesses can claim credits per qualified employee they paid wages to during 2020 and 2021. 

What Are the Eligibility Requirements?

You may qualify for the ERTC if one of the following statements applies to your business:

·      Your business experienced a full or partial shutdown because of COVID-19 laws and regulations.

·      Your business suffered a significant decline in gross receipts (a 50% drop in 2020 compared to 2019 or more than a 20% drop in Q1 or Q2 2021 compared to the same quarter in 2019).

Telework and essential businesses typically cannot qualify for the program unless they meet the second bullet point. Businesses may qualify for both the ERTC and PPP loan forgiveness, though you cannot claim any wages paid using PPP funds. 

Factoring In Your Number of Employees

The number of workers your business employs affects your eligibility and qualified wages. For 2020, the threshold for full-time employees (FTEs) is 100, only including those who work 30 hours per week or 130 hours per month. The figure increased for 2021 qualifying businesses to 500 full-time employees.

·      500 or fewer FTEs for 2021 or 100 or fewer for 2020: Qualified wages include all wages paid to workers during the period, regardless of employment status.

·      500 or more FTEs for 2021 or 100 or more for 2020: Only wages paid to employees who were not working during the period because of suspended operations.

Calculating Your Qualified Wages per Employee

Whether you had a workforce fluctuation or suffered financial losses, your business may be able to take advantage of the ERTC. To do so, you’ll need to calculate your qualified wages per employee. The qualified wages depend on the tax year you’re claiming. 

For 2020, you can claim paid wages from March 13 to December 31. To calculate your qualified wages, add up 50% of the paid wages with a maximum of $10,000 per employee (the maximum total being $5,000 per employee for the year). 

For 2021, you can claim wages from January 1 to September 30. Eligible recovery startup businesses that began after February 15, 2020, with gross receipts under $1 million can claim wages until December 31, 2021. In 2021, qualified wages include 70% of wages per quarter of up to $10,000 per employee, equaling a maximum of $7,000 for each worker per quarter, or $21,000 per employee for the year. 

Claiming the ERTC When Your Workforce Fluctuated in 2020 or 2021

Whether labor market impacts caused a workforce fluctuation, your business shut down from government orders, or your company suffered financial losses, you may be eligible for the ERTC. You can submit a claim by amending your previous tax return or meeting with our tax professionals at Dayes Law Firm. Call Dayes Law Firm in Phoenix, AZ, at (866) 567-4510 for a free consultation so you can take full advantage of the ERTC.