What Are the ERC Revenue Requirements?

July 14, 2023
Dayes Law Firm

If your business suffered losses during the COVID-19 pandemic, it could qualify for a valuable refund from the IRS. The Employee Retention Credit, or ERC for short, can give you a credit worth thousands per employee.

The catch? The IRS has fairly strict ERC revenue requirements you’ll need to meet. There’s a lot of confusion surrounding these requirements, and many business owners who qualify don’t bother applying because they don’t think they’re eligible.

Below, you’ll learn about the 2020 and 2021 revenue requirements for the ERC.

ERC Revenue Requirements for 2020

To qualify for the ERC in 2020, your business will need to have experienced what the IRS calls a “significant decline” in gross receipts compared with the same calendar quarter in 2019. A significant decline means a 50% or greater drop in your gross receipts.

If you’re an eligible employer, the IRS will give you a maximum credit of 50% of the first $10,000 in qualified wages, up to $5,000 per employee. Wages include both money paid to employees as part of their paychecks, as well as contributions you made to employee health plans.

If you had under 100 employees, “qualified wages” means wages paid during a full or partial suspension of operations, regardless of whether employees provided services for you at that time.

If you had 100 or more employees, you qualify if you paid wages to employees who didn’t provide services to you.

ERC Revenue Requirements for 2021

The IRS changed the eligibility requirements for the 2021 ERC. To qualify, you’ll need to have had a significant decline in gross receipts in the first three quarters of 2021. Your gross receipts must be 80% or less of your receipts in the same quarter in 2019.

For 2021, you can claim a credit of up to 70% of the first $10,000 in wages paid per quarter, up to $7,000 per employee per quarter.

Other Eligibility Requirements

Even if your business doesn’t meet the gross receipts test, you could qualify if it partially or fully suspended operations because of government orders. For instance, if you own a medical practice and your city put limits on the number of patients you could see, that would qualify as a partial suspension.

To illustrate further, let’s say that government orders mandated you to stop holding in-person meetings. Because of the nature of your business, you couldn’t hold meetings online as you would in person. This qualifies as a partial suspension as well.

Can You Still Claim the ERC?

The ERC program ended in September 2021, but you can still claim the credit up to two years after paying taxes or three years after filing your return. For the 2020 tax year, you have until April 15, 2024, to claim the credit. For 2021, you have until April 15, 2025.

You can file Form 941-X (Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund) to claim your credit.

Expect to wait a few months for the IRS to send you your refund. Thousands of businesses have applied for the credit, and it will take the IRS some time to work through the backlog of applications.

Reach Out to Us To Learn More About ERC Requirements

The ERC revenue requirements can be confusing and hard for business owners to understand. Call Dayes Law Firm at (800) 503-2000 if you’re unsure whether you qualify for the credit. We’ll review your tax situation to determine whether you’re eligible.