What are the Frequently Asked Questions on ERC Eligibility?

November 28, 2023
Dayes Law Firm

Although the IRS has put in place a temporary moratorium on new Employee Retention Tax Credit (ERTC/ERC) applications through the end of the year, businesses that are eligible for the program should still be able to apply for it after that point. Employers who haven’t yet applied for the ERC may still have some questions about it, and may specifically have some queries about how a business is eligible to claim the tax credit in the first place. 

The Most Frequently Asked Questions About ERC Eligibility

  1. Are all businesses eligible for the ERC?

No, not every business is eligible for the ERC. There are specific eligibility requirements

  1. Who can claim the ERC?

To be eligible to claim the ERC, employers must have sustained a full or partial suspension of operations as a result of an order from a governmental authority because of COVID-19 during 2020 or the first three quarters of 2021, or experienced a “significant” decline in gross receipts in the year 2020 or a decline in gross receipts during the first three quarters of 2021, or need to qualify as a recovery startup business for the third or fourth quarters of 2021.

  1. Who cannot claim the ERC?

Although many businesses and business owners can claim the ERC under current eligibility requirements, there are certain exceptions. The IRS notes that “individual taxpayers who are not business owners,” self-employed individuals without employees, employees, retirees, and household employers are among those who cannot claim the ERC. Employers that didn’t pay wages to employees during qualifying periods or who don’t meet the previously mentioned requirements also can’t claim the tax credit. 

  1. Does being an essential business impact ERC eligibility? 

Not necessarily. Your business still needs to qualify under the gross receipts test or have experienced a partial suspension of operations due to an order from a government authority to be eligible for the Employee Retention Tax Credit.

  1. Does taking a PPP loan mean you aren’t eligible to claim the ERC?

No. However, while taking part in the Paycheck Protection Program doesn’t impact your eligibility to claim the ERC, it does impact the amount of qualified wages used to calculate the credit. A trusted tax professional can help you calculate this complex data accurately. 

  1. Does the number of employees impact ERC eligibility?

Business size can influence eligibility for the credit. The ERC is applicable to businesses with 100 or fewer full-time employees for the year 2020. According to Forbes, “For 2021, an eligible employer that averaged 500 or fewer full-time employees in 2019 can include ANY wages (whether the employee provided a service to the business or not) when trying to determine the maximum amount of qualified wages,” and, “an employer that averaged greater than 500 full-time employees in 2019 can only evaluate wages paid to employees for not providing services.” Again, these are details you might want to work out with an ERTC professional and/or tax attorney.

How Dayes Law Firm Can Help

At Dayes Law Firm, we understand you may still have a lot of questions about the Employee Retention Tax Credit program. Our team of experienced tax attorneys would be happy to help you. 

Please contact us to get in touch and schedule a free, no-obligation consultation about the ERC today. We can discuss the eligibility of your business and how you can best move forward if you do qualify to claim the credit. Give us a call today to learn more!