The Employee Retention Tax Credit (ERC) is a refundable tax credit meant to encourage employers to keep their staffing during the COVID-19 pandemic. The CARES Act was signed into law on March 27, 2020. In 2021, the bill was greatly expanded. Businesses in the lower-middle market can apply for the Employee Retention Credit. COVID-19 affected businesses can claim up to $5,000 in refundable tax credits for the year 2020 and up to $7,000 per quarter (except Q4) in 2021.

Who can claim the Employee Retention Credit?

If a COVID-19 related government order impacted or changed your business operations during the applicable calendar quarter OR if your business revenue fell by more than 20% in a quarter in 2021 compared to the same quarter in 2019 or the quarter before that, then you are eligible. Recovery start-up businesses can qualify for the ERC Credit as well. In order to qualify as an RSB, there is a separate set of criteria from the regular ERTC rules that a business must meet:

1. It began carrying on a trade or business after February 15, 2020

2. Its average annual gross receipts for the three-tax-year period ending with the tax year that precedes the calendar quarter for which the ERTC is determined do not exceed $1,000,000

3. It is not otherwise an eligible employer due to a full or partial suspension of operations or a decline in gross receipts (this requirement is obsolete for fourth quarter of 2021).

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Employee Retention Credit Examples

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1. Companies with 5 – 100 employees  

Many small businesses with 5-100 employees, such as law offices, dentist & optometrist offices, and smaller nonprofit firms, qualify for the Employee Retention Tax Credit service. The ERTC was designed to help small and mid-size businesses recover from the hefty financial and staffing fallout of Covid-19. If your company of this size is still having issues with employee retention, see our HR for small businesses guide for some useful tips!

Why companies in this employee size commonly qualify for ERC:

- Government-mandated shutdowns.

- Significant revenue reduction compared to 2019.

- Reduced operational hours and ability to service customers.

2. Companies with 100 – 500 employees  

Some common examples of companies with 100-500 employees are gyms and fitness centers, transportation service companies, and restaurants. Obviously and significantly, these types of businesses were impacted by the Covid-19 pandemic and qualify for the ERTC for many reasons. At the beginning of the pandemic in 2020, numerous businesses closed, especially businesses that had high customer traffic and therefore elevated levels of person-to-person interaction.  

Many companies in this employee size commonly qualify for ERC due to the following reasons:

- Government-mandated shutdowns and reduction in operational hours.

- Significant revenue reduction compared to 2019.

- Limited capacity or service offerings due to social distancing policies.

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3. Companies with 500+ Employees

Some common examples of companies that fall into this category are distribution companies, hotels, and tech companies. While the Employee Retention Tax Credit was established to support small and midsize businesses, larger companies can still apply for the ERTC. However, the process is lengthier and payroll costs cannot be included. Additionally, the per-employee tax credit is smaller for large businesses compared to what is available to small businesses.

Companies of this size usually qualify for the ERC because:  

- They saw a significant revenue reduction compared to 2019.  

- Suppliers were unable to deliver crucial goods, services or materials.  

- Tasks or work that couldn't be done remotely or experienced a difficult remote transitional period.