What Strategies Should Employers Adopt To Utilize the ERTC?

January 15, 2024
Dayes Law Firm

The COVID-19 pandemic may seem like a distant memory now, but plenty of businesses are still struggling to recover in the aftermath. If yours is one of them, you may be able to take advantage of an IRS refund called the Employee Retention Tax Credit (ERTC).

The ERTC provides eligible businesses up to $26,000 per employee paid during 2020 and 2021. Not sure whether you qualify? Here are a few helpful ERTC implementation tips for business owners.

Understand the Process to Qualify for the ERTC Qualifies

The ERTC is open to both for-profit businesses and nonprofits, and the qualification requirements are the same for both. Requirements differ slightly depending on the year for which you want to claim the credit. They are as follows:

  • A significant decline in gross receipts compared to the same calendar quarter of the previous year. If you want the credit for 2020, you’ll need a drop in gross receipts of at least 50%. The IRS relaxed this requirement for 2021. To qualify for this year, you need a drop of at least 20%.
  • A full or partial business closure due to a government order limiting travel, commerce, or group meetings

That second requirement confuses many business owners. If you’re unsure whether you qualify for ERTC implementation due to a partial shutdown, consider these examples:

  • You run a preschool and had to cut your classroom size by half.
  • You own a diner and had to set up outdoor seating because your city placed a restriction on indoor dining.
  • You manage a diagnostics lab and the pandemic caused you to close your waiting room.

Another Way To Qualify

Did you launch your business on or after February 15, 2020? If so, you might qualify for the ERTC even if you don’t meet the requirements above.

This is called qualifying as a recovery startup business. You’ll need to meet all of these requirements:

  • You have at least one W-2 employee (does not include owner-operators or family members)
  • Your annual revenue for the past three tax years does not exceed $1 million
  • You don’t qualify for the credit due to a drop in gross receipts or closure due to a government order (this requirement doesn’t apply for the fourth quarter of 2021)

Apply for the ERTC Retroactively

Although the ERTC program has ended, you can still apply for the Employee Retention Credit (ERC) retroactively. To do so, file Form 941-X: Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund and send it to the IRS.

Note that you’ll need a separate form for each quarter that you want to claim the credit. On each form, document qualified wages paid, including employee health insurance costs. Attach proof that you qualify due to a government shutdown or drop in gross receipts.

Do PPP Loan Recipients Qualify?

When the ERTC program launched in 2020, the IRS forbade businesses from claiming the credit if they took a PPP loan. For 2021, though, you can qualify for the ERTC even if you’ve already taken a PPP loan.

There is a catch: if you used a portion of your PPP loan to pay employees, you can’t claim those wages for the ERTC. You’ll need to deduct the percentage of wages paid with PPP funds from your totals to avoid running afoul of the IRS.

Learn More About Claiming This Valuable Credit

Interested in ERTC implementation but don’t know where to start? If you need help claiming the credit, reach out to Dayes Law Firm. Our attorneys can tell you whether you’re eligible and give you tips on how to apply. Call Dayes Law Firm at (800) 503-2000 for a free consultation.