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COVID Tax Relief for Businesses: Who Qualifies?

Updated: Jul 25, 2023

Businesses suffering financially from the COVID-19 pandemic in the 2020 and 2021 tax years still have time to apply for the Employee Retention Credit (ERC or ERTC). Although the deadline for ERTC is not until 2024 for the 2020 tax year and 2025 for the 2021 tax year, the IRS has a long backlog of applications to go through. To avoid waiting too long for this significant financial relief for your business, it is best to apply as soon as possible.

Small to midsize business impacted by the COVID-19 pandemic

What Industries Qualify for ERC?

There are very few limits to what industries qualify for the ERTC. In the 2020 tax year, any business with under 100 employees can apply using qualified wages paid or if they had a decline in gross receipts over 50%. But, this tax year excludes government, agencies, and their instrumentalities, such as a state public transportation company.

The following industries are examples eligible for the ERTC:

The IRS follows a strict policy of the number of employees that a business can be eligible for when it comes to the ERTC. For example, hotels that have more than 100 employees in 2020 are not eligible for the tax credit. They must also have paid eligible wages to employees during qualifying quarters of 2020 or 2021. The goal of ERTC was to incentivize businesses to keep employees on payroll during the nationwide financial unsteadiness caused by the pandemic.

ERC for New Businesses

Businesses that opened or began business operations on or after February 15, 2020 may also qualify for the third and fourth quarters of 2021. The ERTC was extended for 2021 to help startup businesses recover from financial loss when they opened during the pandemic. This gave new businesses a fighting chance at recouping unexpected loss in the 2020 tax year and 2021 tax years.

The startup businesses could earn up to $7,000 per employee per quarter in the 2021 tax year.

New businesses cannot use wages paid out to family members towards the ERC application. Wages paid to business owners, co-owners, partners, or relatives do not count towards the ERTC.

Midsize Businesses

While mid-sized businesses do not qualify for the ERTC for the fourth quarter of 2021, they could still qualify for the 2020 tax year and first three quarters of 2021. For 2021, a mid-sized business is considered to have less than 500 employees. For the 2020 tax year, mid-sized businesses need to have no more than 100 employees on payroll.

When applying for the ERTC, mid-sized businesses can use salaries, hourly wages, and even medical expenses paid out to employees. A refundable tax credit could help businesses pay wages to employees, cover business expenses, and recover significant loss from a decline in gross receipts during the pandemic. Mid-sized businesses could earn up to $21,000 per employee for the 2021 tax year.

Combining ERC with Other COVID Relief Programs

Under the CARES Act and other government aided programs, businesses were able to receive financial relief after being impacted by the COVID-19 pandemic. Such programs include the PPP loan, Restaurant Revitalization Fund, and small business tax programs established under the American Rescue Plan, such as the Paid Leave Credit.

Qualified wages used towards other COVID relief programs cannot be used again when applying for the ERTC. However, receiving aid from another program may not fully disqualify your eligibility from the ERTC. For example, if you received a PPP loan in 2020 that was paid off, you cannot use the same qualified wages used to apply for that loan towards the ERTC application. However, you can use other qualified wages from that tax year to apply for ERTC if your business fits the other requirements for eligibility.

How Much Does My Business Qualify for?

If your business is eligible for the ERTC, you can calculate your business’ ERTC before contacting an ERC specialist to help you apply for the refundable tax credit. Trying to apply for the ERTC to get more than the amount you qualify for could result in an audit from the IRS. For that reason, it is important to seek out a qualified ERC specialist with a reputable background in helping businesses apply. This way, you avoid any issues with the IRS that could lead to further consequences.

Hiring Five Star ERC Experts ensures you that you are in the right hands. Our team consists of certified tax attorneys and tax consultants who have dedicated their careers to gaining experience handling forms for the IRS. Using our team can also help you avoid the pitfalls of ERC scams, such as ERC mills. An ERC mill could not only hinder your chances of receiving this credit, but you could wind up paying up front costs and not receive your deserved credits. Five Star ERC Experts does not and will never charge upfront fees for ERC application submissions.

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