Who Qualifies for the ERC Tax Credit?

Who Qualifies for the ERC Tax Credit?

You’ve kept your business afloat during the pandemic, but you’re wondering if you qualify for the Employee Retention Credit.

You’ve heard the buzz and seen others cash in, but how about you? This guide is for you, diving into the qualifications, clearing your doubts, and showing you how to claim what’s yours.

Whether you’re a small business, start-up, or corporation, let’s discover if you’re eligible for the ERC tax credit.

Who Qualifies for ERC?

To figure out if you qualify for the ERC, you need to consider whether your business falls under small enterprises, startups, nonprofits, corporations, LLCs, or companies with less than 500 employees. The ERC is designed to help US-based businesses across almost every industry. So, whether you’re running a quaint coffee shop or a bustling tech startup, you could be eligible.

However, there’s a catch. If your company was able to work from home without modifying its operations, it mightn’t qualify. The ERC aims to help businesses that were heavily affected by the pandemic, those that had to adapt and change to keep going. But don’t lose hope just yet. Even if you switched to a remote setup smoothly, you’re still in the game if your income took a major hit.

3 Basic ERC Qualifications

Continuing from where we left off, it’s crucial to understand the three basic qualifications your business must meet to be eligible for the ERC tax credit.

Firstly, your business must be based in the United States.

Secondly, you should have employed fewer than 500 full-time employees in 2019.

The third qualification is that your business must have either faced a significant disruption of operations due to government mandates or endured a considerable loss of income during the pandemic.

If your business meets these qualifications, you may be eligible. However, determining the quarters you qualify for can complicate things. You don’t need to retain an employee for the entire pandemic or a full year to qualify. Any wages paid during a qualifying quarter can be declared as eligible wages.

The rules differ for 2020 and 2021. The 2021 ERC qualifications are more accessible, meaning many businesses may qualify for a sizable refund this year but receive nothing for 2020.

Due to these complexities, we recommend seeking professional assistance from a reputable tax credit provider.

How Do You Qualify for the ERC for 2020?

If you’re wondering how to qualify for the ERC in 2020, you must understand the specific requirements laid down for that year. The ERC was designed to aid businesses impacted by the pandemic, and eligibility hinges on certain criteria.

Here’s a brief rundown of the qualifications:

  1. Your business must be based in the USA.
  2. You’d 100 or fewer full-time, W-2 employees in 2019. Part-time employees working less than an average of 130 hours per month don’t count towards this cap.

For the third qualification, you have two options:

  1. You’d to significantly modify business operations to comply with pandemic-related government orders. This includes full/partial shutdown mandates, work-from-home orders, customer capacity limits, or social distancing orders.
  2. Your business experienced a 50% loss of income from a single quarter of 2019 to the corresponding quarter of 2020. You don’t have to qualify based on the total yearly income.

Congress Expands Employee Retention Credit Eligibility for 2021

Despite the stringent requirements for the 2020 ERC, you’ll be glad to know that Congress made the ERC more accessible for businesses in 2021. They expanded the eligibility criteria and increased the refund values, recognizing the persistent challenges you might be facing due to the pandemic.

You may find relief in knowing that even if your business didn’t qualify for the 2020 ERC, chances are higher for 2021. The aim is to cover a broader spectrum of struggling businesses, providing a financial lifeline to help you keep your team employed.

The ERC changes for 2021 aren’t merely about expanded eligibility. Congress also increased the maximum credit value to $7,000 per employee, per quarter. That’s a potential $28,000 annually, up from the previous $5,000 limit per employee. This means more money back in your pocket if your business meets the criteria.

How Do You Qualify for the ERC for 2021?

Navigating the expanded eligibility for the 2021 ERC might seem daunting, but understanding if you qualify can bring significant financial relief to your business. To qualify for the ERC tax credit for 2021, your business needs to meet certain criteria.

Here are four key qualifications you must meet:

  1. Location: Your business must be based in the USA.
  2. Employee Count: You should have had 500 or fewer full-time, W-2 employees in 2019. Don’t worry if you expanded above the 100-employee threshold in 2020 or beyond, you may still qualify based on your employee count from 2019. Remember, part-time employees working less than an average of 130 hours per month don’t count towards the 500-employee cap.
  3. Operational Changes: You’d to modify business operations due to COVID-related government orders. This could include changes like customer capacity limits, social distancing measures, full or partial shutdowns, reduced operating hours, or staggered work crews.
  4. Income Loss: Your business experienced a 20% loss of income from a single quarter of 2019 to the corresponding quarter of 2021.

If you meet these guidelines, you could be eligible for a substantial ERC refund.

Can I claim the ERC if my business did not fully shut down?

Even when your business operations weren’t fully halted, you can still claim the ERC, depending on revenue decline or changes in operations due to COVID-related government orders. So, if your business didn’t completely shut down, don’t count yourself out just yet.

You’re in the running for the ERC if 2020 saw a 50% annualized revenue decline, or if 2021’s revenue dipped by 20% compared to 2019. These reductions in revenue can validate your eligibility for the ERC, despite not fully shutting down.

However, there’s another route to qualification. If your income didn’t dip significantly, you can still qualify by illustrating how the pandemic impacted your operations. If government orders led to changes like limited customer or worker capacity, enforced social distancing, work-from-home restrictions, production decreases, partial shutdowns, or reduced operating hours, you could be eligible.

Can I claim the ERC if my business did well during the pandemic?

If your pandemic-era business success story has you second-guessing your eligibility for the ERC, don’t dismiss the possibility just yet. Yes, your business may have thrived during the pandemic, but that doesn’t necessarily disqualify you from claiming the ERC.

Here’s why:

  1. Your business need only have experienced nominal disruptions due to pandemic-related government orders. This includes orders such as indoor dining bans, capacity restrictions, social distancing mandates, and work-from-home orders.
  2. A broad range of businesses can qualify, not just restaurants. Construction companies, for instance, can qualify if social distancing orders slowed their project progress.
  3. Even tech companies can qualify if they experienced supply chain disruptions, like a shortage of semiconductors.
  4. A successful financial year doesn’t eliminate all avenues of qualification. Other impacts on your business operations could still make you eligible for the ERC.

The key here is to consult with a professional ERC provider who can help you determine your eligibility based on these factors. So, thriving during the pandemic doesn’t necessarily mean you can’t claim the ERC.

Does Your Business Qualify for ERC?

To determine your business’s ERC eligibility, you’ll need to carefully assess your company’s operational disruptions and financial losses during the pandemic. If your US-based business employed less than 500 employees in 2019 and faced either a nominal disruption of operations due to government orders or endured a significant loss of income, you might be eligible.

However, ERC eligibility isn’t straightforward. The qualifying quarters for 2020 and 2021 can be challenging to determine, and calculating your potential refund can be complex. Therefore, it’s essential to seek expert help. Your business may qualify in one quarter, but not the next. If you incorrectly claim the ERC, you’ll have to repay it, likely with penalties and interest. Conversely, if you don’t claim when you’re eligible, you’re leaving money on the table.

To ensure you accurately determine your ERC eligibility and correctly calculate your credit, it’s advisable to consult a tax credit provider specializing in payroll tax credits. They can provide the expertise needed to navigate this complicated process.


So, you’ve navigated the stormy waters of the pandemic and kept your team onboard.

Now, it’s time to see if you qualify for the ERC tax credit. Remember, it’s not just for struggling businesses or full shutdowns. Even if your business thrived, you might be eligible.

Don’t leave that potential $26K per employee on the table. Dive into the specifics, check your eligibility, and claim what could be rightfully yours.

Get started today!