IRS Checklist Provides Help Understanding ERTC Eligibility

December 15, 2023
Dayes Law Firm

The Employee Retention Tax Credit (ERTC), also called the Employee Retention Credit (ERC), gives employers back a portion of qualified wages paid to employees in 2020 and 2021. You may use this refundable tax credit for anything you’d like, such as buying new equipment, creating training programs, or building out your benefits program.

The ERTC IRS checklist can help you determine whether you’re eligible, but deciphering what it means may be somewhat challenging. Here’s how to know whether you qualify.

Questions on the ERC Eligibility Checklist 

To determine whether you can claim the ERTC, answer these questions:

  1. Did you operate a trade, business, or tax-exempt organization between March 13, 2020, and December 31, 2021? If not, you don’t qualify for the credit. Note that household employers don’t meet this requirement. For instance, if you hire a cleaner to tidy your home, you can’t claim their wages.
  2. Did you have at least one employee during the same period? You cannot claim the credit if you’re self-employed and have no employees.
  3. Does your business meet the gross receipts test? You must have had a major decline in gross receipts for this test. This means a drop of at least 20% compared to the same calendar quarter for 2021 and 50% or more for 2020. If you pass the test, you qualify. If not, go to the next question.
  4. Did your business close down, partially or fully, because of a government order? For example, say you run an urgent care clinic and had to limit how many people you allowed in the waiting room at once. That could qualify as a partial shutdown.
  5. Are you claiming the credit because of supply chain problems? If yes, be careful because supply chain issues alone don’t qualify you for the credit. To qualify, your supplier must have been impacted by a government order due to COVID-19, and your business suffered as a result.
  6. Do you qualify as a recovery startup business? If you started your business on or after February 15, 2020, have at least one employee, and earned less than $1 million in revenue for the past three years, then you can answer yes to this question. You may qualify for the ERTC even if you don’t pass the gross receipts or shutdown order test.

Claiming the Employee Retention Tax Credit

If you think you’re eligible for the ERTC after following the ERTC IRS checklist, you can claim the credit using Form 941-X, Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund. On this form, note the quarter for which you want to claim the ERTC, qualified wages and healthcare costs paid, and the total refundable portion of the ERTC.

Provide a detailed description of your calculations at the bottom of the form. If you have evidence of your eligibility, such as gross receipts, submit it with your claim.

What to Do If You Made a Mistake on Your Claim

If you made an error on your claim and wish to withdraw it, you can do so if all of the following are true:

  • You made the claim on an adjusted employer’s tax return
  • You filed the return only to claim the ERTC and didn’t make any other adjustments
  • You wish to withdraw the entire amount of the claim
  • The IRS either hasn’t paid the claim or has paid the claim, but you haven’t yet cashed or deposited the check

Work With a Trusted Tax Professional To Claim the ERTC

Having trouble understanding the ERTC IRS checklist or need help claiming your credit? Call Dayes Law Firm at (800) 503-2000 for assistance.