IRS Guidance Tips Regarding the ERTC for Businesses

July 12, 2023
Dayes Law Firm

The COVID-19 pandemic hit businesses hard, especially those shutting their doors for months in response to government orders. The IRS guidance introduced the ERTC, also known as the ERC or Employee Retention Credit, to give struggling businesses some relief.

You’re not alone if you’ve never heard of this refundable tax credit. Many businesses aren’t aware of it or do not know whether they qualify.

Here are a few IRS tips for the ERTC you need to know.

What Is the Employee Retention Credit?

The ERTC is a 50% to 70% tax credit for employers who kept employees on payroll during the pandemic. It also includes Paycheck Protection Program (PPP) loan forgiveness of up to $2 million.

You may be eligible for this credit if you continued to pay employees qualified wages during this time, even if they weren’t actively working for you.

If you kept full-time workers on payroll from March 13 to December 31, 2020, you might qualify for a credit of up to $5,000 per employee per quarter. This increases to $7,000 per employee per quarter (up to $21,000 for the year) for workers kept on payroll from January 1 to September 30, 2021.

Who Qualifies?

If you chose a PPP loan in 2020, the IRS barred you from qualifying for the ERTC. The IRS has since removed that restriction, which means you can take both.

The credit is available to businesses, including recovery startup businesses, that meet either of these requirements:

  • Shut their doors either partially or fully because of a government order
  • Have less than 300 employees and have used up their first PPP loan

You also qualify if you had a significant decline in gross receipts. For 2020, you’ll need to show a 50% decline in gross receipts compared to the same quarter in 2019. For 2021, you must have a 20% or greater decline in gross receipts.

How Many Employees Can You Claim?

For 2020, you can claim all your employees if you have 100 or fewer employees. If you have more than that, you can only claim the ones who weren’t working.

For 2021, the number of employees you can claim increases to 500 if you have as many or fewer employees. Again, if you have more than 500, the IRS only lets you claim the credit for non-working employees.

How Do You Apply for the ERTC?

The ERTC doesn’t have a specific application. Instead, you can claim it on these forms:

  • Reporting Agent Authorization, Form 8655
  • PPC Application and Forgiveness
  • Advance Payment of Employer Credits Due to COVID-19, Form 7200
  • Employer’s Quarterly Federal Tax Return, Form 941

Watch Out for ERTC Scam Promotions

Regarding the ERTC, the IRS warns businesses to be on the lookout for scams that encourage them to “apply” for a credit they don’t qualify for. If you claim this credit through one of these scams, you’ll have to pay it back.

Warning signs of scams to look out for include:

  • Companies that charge fees based on a percentage of the refund claimed
  • Large upfront fees for claiming the credit
  • Statements that sound too good to be true, like “You have nothing to lose!” or “We can determine your eligibility in minutes!”
  • Companies that say you’re an eligible employer without understanding your tax situation first

Contact Dayes Law Firm To Learn More About the ERTC

If you’ve read these IRS tips for the ERTC and still don’t know whether you qualify, reach out to Dayes Law Firm at (800) 503-2000 today. We’ll explain everything you need to know and help you claim the credit if you’re eligible.