What Counts as an Essential Business Related to the ERC?

July 27, 2023
Dayes Law Firm

The Employee Retention Tax Credit (ERTC), also known as ERC, is a benefit aiming to support businesses that retained workers during the COVID-19 pandemic despite suffering significant losses due to government-mandated operating restrictions. 

As an essential business owner, you may assume you don’t qualify for the ERC tax credit because your business continued operating during the pandemic. However, there’s a very good chance your business could be eligible for this benefit if you meet certain requirements. So when can you claim ERTC for essential businesses? 

What Is an “Essential Business” for ERTC purposes?

If you operate an essential business, at first glance, it may look as if you haven’t suffered either a full or partial suspension of your operations or a significant decline in gross receipts, which are the two main eligibility requirements for collecting the ERC tax benefit.

However, many businesses that fell under the definition of “essential” during the pandemic still suffered from direct or indirect restrictions on their operations. This includes different types of businesses that remained open during the COVID-19 lockdowns, such as:

  • Medical facilities
  • Grocery stores
  • Hardware stores
  • Childcare centers
  • Electricity and plumbing services

For example, your hardware store may have continued to operate throughout the pandemic, but you had to restrict your store’s occupancy, which impacted your sales. If you kept your workers on the payroll despite the losses your business suffered, you could potentially claim the ERTC benefit. 

Who Can Claim the ERTC for Essential Businesses? 

Many owners of essential businesses don’t even bother checking whether they may qualify for ERC because their businesses remained open throughout the pandemic, and their revenue drop was below the threshold.

But this may not be as straightforward as you think. The IRS might allow essential businesses to collect ERTC if their non-essential operations suffered a suspension of more than a “nominal portion” due to government orders. A “nominal portion” by IRS definition would be a reduction of 10% or more in sales or operation hours, even if your revenue dropped by less than 10%.

For instance, in some areas, state decrees restricted big box retailers like Walmart and Target to selling essential items only. Thus, these businesses suffered a decline in sales even though they stayed open. 

Could Your Essential Business Qualify for the ERC Tax Credit?

It’s possible that your essential business could claim the ERTC benefit if your operations during the pandemic had to undergo shifts or restrictions because of requirements like:

  • Limited occupancy
  • Contactless drop-off or pick-up
  • Enforced social distancing
  • Extra cleaning or sanitizing
  • Any restrictions on items you could sell or services you could provide

It can be complicated to figure out whether your essential business meets the IRS requirements for claiming ERTC. Moreover, the deadline for ERTC applications is approaching fast: You can only claim ERC for 2020 until April 15, 2024. You’ll need to look at your payroll filings for eligible quarters and work on your application ASAP.

Working with a competent tax attorney can make life much easier when you prepare to apply for ERTC. An experienced lawyer can evaluate your eligibility for the ERTC benefit and help you compile and file your application. 

Contact Dayes Law Firm to Find Out Whether Your Business May Claim the ERC Tax Benefit

Not sure whether you count as an eligible employer for ERTC purposes? Contact us at Dayes Law Firm PC and find out whether you can claim ERTC for essential businesses. We’ll evaluate your case, handle your application, and make sure you meet all deadlines and other requirements in applying for ERTC. 

Call 800-503-2000 to schedule a free consultation today