The ERTC Eligibility Criteria: What You Need To Know

July 21, 2023
Dayes Law Firm

The COVID-19 pandemic took a heavy toll on businesses nationwide. Virtually overnight, many businesses had to close up shop partially or totally, costing owners millions in lost revenue. Many employers also lost employees because they couldn’t continue paying them during shutdowns.

If you continued paying your employees during the pandemic, your business might qualify for the Employee Retention Credit, also called the Employee Retention Tax Credit or ERTC. Here’s what you need to know about ERTC eligibility. 

ERTC Eligibility Criteria for 2020

The IRS has strict requirements as to which businesses can claim the ERTC for 2020. You must meet one of the following requirements to qualify:

  • Your gross receipts were less than 50% compared to the same calendar quarter in 2019.
  • Due to government orders, your business had to shut down partially or fully (for example, you own a restaurant and could only serve customers outdoors because you had to close your dining room).
  • You own an essential business, and one of your affiliates had to shut down because of a government order.
  • One of your key suppliers partially or fully shut down in response to a government order.

The number of employees you have also affects how much you can claim. If you have fewer than 100 employees, you can claim all wages paid to them regardless of whether they worked for you at the time. For more than 100 employees, you can only claim wages for those who weren’t working.

If you qualify, you can claim up to $5,000 per employee.

ERTC Eligibility Criteria for 2021

ERTC eligibility requirements changed for the 2021 tax year. As with 2020, you qualify if your business, an affiliate, or a supplier partially or fully suspended operations because of a government order. This includes orders limiting travel, commerce, or in-person group meetings.

One of the biggest changes was to the gross receipts test. For 2021, you qualify if your business experienced a 20% drop in gross receipts during any of the first three calendar quarters compared to the same quarter in 2019. You must have also paid qualified wages to employees between January 1, 2021, and September 30, 2021. The IRS also increased the number of employees to whom you paid qualified wages from 100 to 500.

If you qualify as an eligible employer for 2021, you can claim up to $7,000 per quarter per employee ($21,000 total for the year). 

Do You Qualify if You Took a PPP Loan?

When the IRS introduced the ERTC as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, it barred employers from claiming the credit if they also took a Paycheck Protection Program (PPP) loan. Now, you can claim the ERTC even if you took a PPP loan.

However, the IRS doesn’t allow PPC forgiveness for wages for which you’ve already claimed the ERTC. If you took out a PPC loan and aren’t sure whether you qualify for the ERTC, contact a financial advisor or consultant to go over your tax situation with you.

How to Claim the ERTC

If you think your business qualifies for this refundable tax credit, it’s not too late to claim your piece of the pie. To do so, you must file Form 941-X, Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund.

Learn If Your Business is Eligible for the ERTC

Still don’t know whether you qualify for the ERTC? The requirements are complicated, so you’re not alone. If you need help to understand ERTC eligibility, reach out to Dayes Law Firm PC at (866) 257-1223 today.