Who Is Eligible For The Employee Retention Credit

Are you an employer trying to figure out who is eligible for the Employee Retention Credit (ERC)?

It’s important to understand all the criteria and requirements in order to determine if your business qualifies.

This article will provide a comprehensive overview of the ERC, including who qualifies, what other factors can affect eligibility, and which forms are necessary.

We’ll also explore any updates made to the ERC so you can stay up-to-date with current regulations.

With this information, you’ll be able to make an informed decision about whether or not your business meets the qualifications for this credit.

How Does the Employee Retention Tax Credit Work

You can get a refundable tax credit to help keep your employees on the payroll while navigating the difficult economic conditions caused by the pandemic. This is known as the Employee Retention Tax Credit (ERTC). It was introduced through the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) and it’s available to eligible employers from March 13, 2020, to Sept. 30, 2021.

The ERTC allows employers to receive a refundable payroll tax credit equal to a percentage of qualified wages based on their previous tax filings. The Consolidated Appropriations Act modified this rule so that eligible employers could both file for a PPP loan and claim for ERTC at the same time.

To qualify for ERTC, an employer must have experienced either full or partial suspension of operations due to government orders related to COVID-19 or had gross receipts decline by more than 50% compared with last year. Additionally, employers will need to provide qualifying wages for employees who are not providing services due to business disruptions or changes in operations caused by COVID-19.

The amount of credit received depends on how much qualified wages were paid during each quarter and also what other credits were claimed throughout the year; however, it can’t exceed certain limits per employee depending on whether they’re full-time or part-time workers.

Employers should carefully assess their eligibility before claiming this credit as there may be restrictions that apply when claiming other credits along with ERTC.

Who Qualifies?

Businesses that had to shut down or saw a huge drop in revenue during 2020 and 2021 may be able to benefit from the ERTC. To qualify, employers must meet certain criteria:

  1. For 2020, they must have experienced either a full or partial shutdown due to restrictions imposed by an appropriate government authority due to the COVID-19 pandemic, OR a 50% decline in gross receipts for any calendar quarter compared to 2019.
  2. For 2021, they must have experienced either a full or partial shutdown due to restrictions imposed by an appropriate government authority due to the COVID-19 pandemic OR a 20% decline in gross receipts for any calendar quarter compared to 2019 (or if they weren’t eligible for 2019, then the immediate previous quarter).
  3. Self-employed individuals aren’t eligible for the ERTC credit for their wages but may be eligible if they employ other people.
  4. Political subdivisions, governments, and state entities aren’t eligible for either year’s ERTC credit; however, tax-exempt colleges, universities, and hospitals are eligible in 2021.

The decline in gross receipts is independent of whether or not it was caused by the effects of COVID-19. If these conditions are met, then you could be entitled to take advantage of this tax relief program offered by the IRS. Knowing who qualifies is essential as it enables you to make informed decisions about your taxes on behalf of your business or organization, which can help provide much-needed financial assistance during trying times like these.

What else can affect eligibility?

To maximize your chances of receiving this tax relief, it’s important to consider factors such as whether you’ve taken out a PPP loan and the number of full-time employees you had in 2019. If you’ve taken a PPP loan, you need to provide documentation that includes information about the date and amount of the loan as well as which loans were taken and whether they were forgiven. This will help determine how much you can claim from ERTC.

It’s also necessary to gather information about full-time employees from 2019 in order to calculate wages eligible for ERTC. Part-time employees are also eligible but different criteria applies here. A full-time employee works 30 hours a week or more and their gross pay needs to be included when calculating qualified wages.

Additionally, employers should calculate their total number of W-2 employees for each quarter in 2020 and 2021 using the IRS W3 Form.

The size of an employer is also an important factor when considering eligibility for the ERTC program. For 2020, small employers must have an average of 100 or fewer employees while for 2021 that number increases to 500 or fewer employees on average. Lastly, large employers must include wages paid during periods where an employee was not providing services due to the pandemic in their qualified wages calculation while small employers include all their wages plus health benefits when calculating eligibility for this tax credit program.

Gross receipts for each applicable quarter and its comparison quarter need to be tallied up too so that one can accurately determine how much money they’re eligible for through this program. Sales revenue information, net income/loss figures, and number of full-time employees are all necessary components here as well – these numbers will be used by the IRS when deciding upon ERTC amounts for applicants who qualify under its guidelines.

What forms are required?

Claiming the ERTC can be a great way to ease your financial burden, so make sure you have all the necessary forms ready! The three required documents are Form 941-x, Form 941, and Form 7200.

Filing Form 941-x is necessary for retroactive claims of the credit. Employers should submit Form 941 to claim current credits. Finally, employers must file Form 7200 if they want to receive an advance payment of the credit. This option is only available for small businesses with less than 500 full-time employees, however. There are limitations on advance payments; the amount cannot exceed 70% of quarterly average wages paid in 2019 or 2020 if applicable.

It’s important to note that filing these forms is mandatory in order for employers to successfully take advantage of this tax credit. If one or more documents are not completed correctly, it could lead to a delay or even denial of ERTC benefits. To avoid any issues and ensure timely receipt of funds due from the IRS, double-check all information before submitting any documents related to ERTC claims.

Additionally, make sure that all relevant deadlines are met since late submissions will not be accepted by the IRS and could result in denial of benefits as well as fines and penalties for noncompliance with federal regulations.

Employers should also be aware that there may be additional state requirements when claiming ERTC such as providing supporting documentation or other paperwork depending on where their business operates from. Furthermore, keep track of any changes made by federal and state governments regarding eligibility criteria since they may vary from time to time based on economic conditions or other factors impacting employment law at a given moment in time.

With all this in mind, it’s essential that employers understand what forms need to be filed when claiming Employee Retention Tax Credit (ERTC) so they can get access to this benefit quickly and without any problems down the line! Doing some research ahead of time can help you stay up-to-date with changes made by governments both federally and locally which can save you lots of trouble later on during the application process.

Updates to ERTC

With the ever-changing landscape of employment law, it’s critical that businesses keep up-to-date on any updates to the ERTC in order to ensure they don’t miss out on this valuable tax relief!

The Infrastructure Investment and Jobs Act (IIJA) brought about a few changes to the rules regarding who is eligible for the Employee Retention Credit. In order to qualify for ERC, small recovery businesses must comply with all applicable rules in Notice 2021-20, Notice 2021-23, and Notice 2021-49 addressing CARES Act provisions.

Employers previously claiming credit may still be able to receive an ERC by amending their quarterly employment tax return for the appropriate quarters if they didn’t already claim credit for all qualified wages paid between March 13, 2020 and December 31st, 2021.

Below are some key points employers should consider when determining eligibility for ERTC:

  • Understand which employees qualify as “affected” or “partially affected” according to IIJA guidelines
  • Make sure that qualified wages were paid between March 13th, 2020 and December 31st, 2021
  • Ensure that proper payroll records have been kept throughout the year
  • File an amended quarterly employment tax return if you haven’t claimed credit already

Businesses should review updated guidance from the IRS regularly in order to determine their eligibility for ERTC. It’s important that employers take advantage of every available opportunity as soon as possible in order to maximize their potential savings from this valuable tax relief!


You now know who qualifies for the Employee Retention Tax Credit and what forms are required.

It’s important to note that other factors can affect eligibility, so be sure to review all of the requirements before applying.

It’s also worth keeping an eye on updates to the ERTC as they come available.

With a bit of research and preparation, you can make sure your business is taking full advantage of this beneficial tax credit.

Don’t wait any longer—start exploring your options today!

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