What Businesses Are Not Eligible to Claim the ERC?

October 26, 2023
Dayes Law Firm

The Employee Retention Tax Credit (ERC or ERTC) is a refundable tax credit available to certain businesses that experienced hardships from the COVID-19 pandemic. Determining your eligibility is the first step in claiming the ERC. However, there are a few types of businesses and entities that are generally not eligible for this credit.

Who is not eligible to claim the ERC? Learn more with our help.

Employer Who Did Not Experience a Full or Partial Suspension of Operations

Practically every business owner can attest that they experienced challenges during the COVID-19 pandemic. But unless your business had to fully or partially suspend operations due to a government order, you may not qualify. 

In some cases, businesses may qualify if they experienced a supply chain disruption, even if they didn’t experience a full or partial suspension of operations. Talk to a tax advisor to determine your eligibility. 

Employers Who Did Not Experience a Significant Decline in Gross Receipts 

Your business must have experienced a significant decline in gross receipts during the pandemic to qualify for the ERTC. You’ll need to calculate your gross receipts for every quarter of 2020 and the first, second, and third quarters of 2021. Then, you’ll need to compare those calculations to your gross receipts from the same quarter in 2019. 

If you experienced a 50% decline in any quarter in 2020 or a 20% decline in any quarter in 2021, you’ll likely qualify for the ERTC for those quarters. If you didn’t, you can consider using the special calculation rule for 2021 calculations, which allows you to compare the previous quarter to the comparable quarter in 2019. For example, when analyzing your eligibility for Q1 2021, you could compare your gross receipts from Q4 2020 to Q4 2019. 

Majority Shareholders of S or C Corporations 

The IRS usually doesn’t provide ERTC benefits to majority shareholders of S or C corporations. The same rule applies to the relatives or lineal descendants of majority shareholders. 

The wages paid to majority shareholders also will not qualify for ERTC credits. However, wages paid to minority shareholders, or those who own 50 percent or less of the shares in these corporations, may qualify. 

Household Employers

Household employers who pay wages to people who work in or around their homes do not qualify for the ERTC. This credit is only available to trades or businesses, and household employers do not fall under this umbrella. 

However, if a household employer also operates a trade or business, they may claim the ERTC for that business. 

Business Owners Who Do Not Have Employees

Another group who is not eligible to claim the ERC is business owners without employees. You must have at least one full-time employee to claim this credit. The ERTC is a credit specifically aimed at employee retention, making it inapplicable to business owners without employees. 

Individual Taxpayers Who Are Not Business Owners

The Employee Retention Tax Credit is only available to businesses. Individuals who are not business owners may not claim this credit. 

Employees

There is some confusion around the term “employee retention,” with some employees believing that this is a credit they can claim. However, the ERTC is only for business owners, not employees. 

Seek ERTC Tax Help From Dayes Law Firm 

If your business does not meet any of the criteria above, you may qualify for the ERTC. It’s not too late to claim this credit. You can file Form 941-X as an amendment to your 2020 and 2021 tax returns until four years after the initial tax return deadline. 

Now that you know who is not eligible to claim the ERTC, contact Dayes Law Firm to begin your application. Call our office at 866-875-1005 or fill out our online form today.