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Finance Forward Blog

Who Is Eligible for the Employee Retention Credit (ERC)?

ERC Credit Eligibility

In a recent development, the IRS has extended the processing time for submitted Employee Retention Credit (ERC) claims from the previous 90-day window to a new 180-day timeframe, while concurrently imposing a moratorium on the filing of new ERC claims through at least the end of 2023. This change comes amidst concerns of a flood of questionable claims, with over 600,000 filings still pending. It raises speculation that some claims may have been approved inaccurately, prompting the IRS to temporarily halt new ERC processing to assess potential issues. To help you navigate this complex credit, we'll provide a basic overview of who is truly eligible for the ERC and direct you to the new interactive IRS eligibility checklist.

Who Is Eligible for the ERC?

The ERC was introduced as part of the federal government’s COVID-19 relief efforts to support businesses facing financial challenges. Understanding if your business qualifies for this credit is crucial. Here are some of the key criteria to consider:

  • Business Establishment: Your business must have been operating during 2020 or 2021.

  • Business Size: The ERC is available to businesses of all sizes, including tax-exempt organizations. However, the rules differ for large employers (more than 500 full-time employees) and small employers (500 or fewer full-time employees).

  • Qualified Wages: You must have had employees and paid qualified wages to them between March 13, 2020, and December 31, 2021. Several factors become relevant here, including how many employees you had on your payroll in 2019, 2020, and 2021.

  • Significant Decline in Gross Receipts: One signifier of eligibility involves demonstrating a significant decline in gross receipts during 2020 or the first three quarters of 2021. This means a year-over-year decline where you grossed less than 50% of the gross receipts in 2020 compared to the same quarter in 2019, and less than 80% for 2021.

  • New Start-Up Businesses: New businesses that began operations after February 15, 2020, may also be eligible for ERC under certain conditions.

  • Partial Suspension of Operations: If a business faced government orders limiting their operations due to COVID-19 during a specific quarter, they may qualify for the ERC even if they didn't experience a significant decline in gross receipts.

For a comprehensive understanding of eligibility and to determine if your business qualifies for ERC, we recommend working through the IRS Employee Retention Credit Eligibility Checklist, which can help you determine your eligibility and navigate the application process effectively. Further, if you believe you have filed a claim that your business is not eligible for, stay tuned for upcoming information from the IRS on a special withdrawal period. Need help determining your eligibility? Schedule a free consultation with us to discuss your specific situation.