Is every business eligible for the ERC?

No

Who is NOT eligible to claim the ERC?

Anyone who did not own a business that had employees during 2020 or 2021 and who did not pay qualifying wages to these employees during these years. Examples of people/entities who do NOT qualify:

• Retirees
• Individual taxpayers who are not business owners
• Employees
• Household employers
• Government agencies
• Self-employed individuals who do not have employees
• Employers that didn’t pay wages to employees during the qualifying time periods
• Employers who experienced supply chain disruptions but did not experience a full or partial suspension of operations by a qualifying order

Does participating in the Paycheck Protection Program (PPP) disqualify me from the ERC?

No, if you participated in the PPP program it will not affect your eligibility for the ERC. But, payroll costs up to the amount that SBA forgave are ineligible for the ERC. You can use the remainder of your qualified wages to calculate your ERC.

Does being an “Essential Business” affect my ERC eligibility?

Being an essential business does not automatically disqualify you from the ERC. You may still be eligible based on the gross receipts test. Or, if you can prove that you experienced a partial suspension of operations due to an order from an appropriate governmental authority, this too could make you eligible.

IRS Source: Eligibility

What are “Qualified Wages” for the ERC?

Generally, qualified wages are wages that are subject to Social Security and Medicare taxes. However, they may also include certain health care expenses you pay for your employees. 

Not all wages that you pay to employees may be qualified wages for purposes of the ERC. For example, 1099 wages do not count as qualified wages. Be wary of anyone who says you can use all wages when calculating your ERC.

IRS Source: Qualified wages

What kind of government orders qualify my business or organization for the ERC?

To be eligible for the ERC, you need to have been subject to an official government order related to COVID-19 that resulted in either a partial or full suspension of your trade or business operations. The government order may have been issued at the local, state, or federal level. An example of a qualifying government order would be if your local city government issued an order that stated that all non-essential businesses must close for a certain period of time.

Can I rely on a recommendation, bulletin, or statement Issued by a government authority to qualify for the ERC?

No. Recommendations or statements encouraging you to take certain actions do not technically count as orders. To qualify for the ERC, you must have been subject to a formal government order that fully or partially suspended your trade or business. 

Is being subject to a government order enough to make me eligible for the ERC?

No. Not just any government order makes you eligible for the ERC. Only government orders related to COVID-19 and that resulted in your trade or business being fully or partially suspended make you eligible for the ERC

What does it mean to be fully or partially suspended?

Whether your business or organization was suspended partially or fully depends on your specific situation. Here are some examples of who doesn’t qualify for the ERC under this eligibility factor:

• If all your employees were able to telework during the COVID-19 pandemic and your business continued to operate, your business wasn’t suspended.
• If your customers were affected by a stay-at-home order, but no orders applied to your business operations, your business wasn’t suspended.
• If you decided to voluntarily close your business or reduce hours of operation, then your business wasn’t suspended.
• It is still possible to qualify for ERC based on a decline in gross receipts even if you don’t qualify under suspension of operations due to a government order.

Remember: You need to be able to prove your claim with a specific government order and show how it suspended all or part of your operations.

If my business was suspended by a government order for only part of a quarter, am I an eligible employer for the entire quarter?

If your business operations were fully or partially suspended due to a governmental order during a portion of a calendar quarter, you are considered an eligible employer for the entire calendar quarter. However, you are only allowed to claim the ERC for wages paid during the suspension period, not the whole quarter.

IRS Source: Qualifying government orders

Was my business or organization fully or partially suspended if I had a supply chain issue?

A supply chain issue does not qualify you for the ERC by itself. But, the IRS did provide a narrow, limited exception if an employer was not fully or partially suspended but their supplier was. However, it applied only when the employer absolutely could not operate without the supplier’s product and the supplier was fully or partially suspended themselves.

IRS Sources: Supply chain and  Legal memo regarding supply chain disruptions

How do I tell if I have the required decline in gross receipts to claim the ERC?

Generally, this test is met by comparing the gross receipts for the calendar quarter in which ERC is considered to the gross receipts for the same calendar quarter in 2019.

• For 2020, you start qualifying in the quarter when your gross receipts are less than 50% of the gross receipts for the same quarter in 2019. You no longer qualify in the quarter after the quarter in which your gross receipts are more than 80% of the same quarter in 2019.  

• For 2021, the gross receipts for the quarter must be less than 80% of the gross receipts for the same quarter in 2019. 
• For calendar quarters in 2021, you can also use the alternative quarter election rule, which gives employers the ability to look at the prior calendar quarter and compare it to the same calendar quarter in 2019 to determine whether there was a decline in gross receipts.

What types of income do I need to include in gross receipts?

If your business is not a tax-exempt organization, gross receipts for ERC purposes generally means gross receipts for the taxable year. This typically includes:

• Total sales (net of returns and allowances)

• All amounts received for services

• Any income from incidental or outside sources

• Any income from investments

IRS Source: Decline in gross receipts

What is a recovery startup business?

A recovery startup business is a business or organization that began carrying on a trade or business after February 15, 2020, and had average annual gross receipts of $1 million or less for the three years preceding the quarter for which they are claiming the ERC. Your business does not need to specifically relate to pandemic relief or recovery efforts to be eligible.

To be eligible as a recovery startup business, you can’t be eligible for ERC under the full or partial suspension test or the gross receipts test. A recovery startup business can claim ERC only for the third and fourth quarters of 2021 and may claim a maximum of $50,000 of ERC per quarter.

IRS Source: Recovery startup business

Does the ERC Have to Be Paid Back?

No. You do not have to pay the ERC back. It is not a loan. You get to keep all of the funds you receive.

Who can sign a claim for a refund for the ERC?

The person who can sign an ERC claim depends on which type of business you have:

The claim for refund may also be signed by a duly authorized agent of the taxpayer if a valid power of attorney has been filed.

Can I claim the ERC on an amended return if I have not filed my original employment tax return?

No. Your claim for an ERC refund will not be processed if you have not filed an original employment tax return.

Can I file an amended return to claim the ERC if I did not issue and file Forms W-2?

No. The IRS will not process ERC claims for refund if the claim for refund is filed after Forms W-2 were due and you did not file Forms W-2.

Does the ERC affect my income tax return?

Yes. The amount of your ERC reduces the amount that you are allowed to report as wage expense on your income tax return for the tax year in which the qualified wages were paid or incurred.

Generally, most taxpayers claim wage expense as a deduction on their income tax returns. However, for some taxpayers, wage expense is properly capitalized to the basis of a particular asset or as an inventory cost.

IRS Source: Claiming the ERC

How do I know if I’m being scammed by an ERC promoter?

Scam promoters use a variety of tactics to mislead people who have no chance of meeting the requirements for the Employee Retention Credit while charging them excessive fees – often thousands of dollars.

• Warning signs of aggressive ERC marketing to watch out for:
• Unsolicited calls or advertisements mentioning an “easy application process,” or offering a short eligibility checklist.
• Statements that the promoter or company can determine ERC eligibility within minutes.
• Large upfront fees to claim the credit.
• Preparers refusing to sign the ERC return being filed by the business, exposing just the taxpayer claiming the credit to risk.
• Aggressive claims from the promoter that the business receiving the solicitation qualifies before any discussion of the group’s tax situation. In reality, the Employee Retention Credit is a complex credit that requires careful review before applying.
• The IRS also sees wildly aggressive suggestions from marketers urging businesses to submit the claim because there is nothing to lose. In reality, those improperly receiving the credit could have to repay the credit – along with substantial interest and penalties.

How can I protect myself from ERC scam promoters?

Work with a trusted tax professional if you’re an eligible employer who needs help claiming the credit; the IRS urges people not to rely on the advice of those soliciting these credits. Promoters who are marketing this ultimately have a vested interest in making money; in many cases, they are not looking out for the best interests of those applying.

Request a detailed worksheet explaining ERC eligibility and the computations used to determine the ERC amount.

Don’t accept a generic document about a government order from a third party. If they say you qualify for ERC based on a government order, ask for a copy of the government order. Review it carefully to make sure it applied to your business or organization.

Don’t apply for this credit unless you owned a business during 2020 or 2021 and believe you are legitimately qualified.

IRS Source: ERC scams

What records do I need to support my eligibility for the Employee Retention Credit?

In general, you need to have the records you relied on to show:

• Your business operations were suspended, including the specific government order;
• You experienced the required decline in gross receipts;
• Which employees received qualified wages and in what amounts;
• You paid qualified wages only to employees who were not providing services, if you are a large eligible employer;
• How you allocated qualified health plan expenses;
• How Paycheck Protection Program loan forgiveness affects your ERC claim (see question regarding PPP in the Eligibility section);
• You also need any completed Forms 7200 that you submitted to the IRS and any completed federal employment and income tax returns related to your claim for ERC.

IRS Source: Recordkeeping

How long will it take to get my Employee Retention Credit?

We will file your application very quickly. However, the IRS currently has a turnaround of about 6-9 months for ERC refunds. 

IRS Source: Timing