ERTC Eligibility Criteria: Who Qualifies and Who Doesn’t?

The Employee Retention Tax Credit (ERTC) is one of the most valuable financial relief programs available to businesses that retained employees during the COVID-19 pandemic. This refundable payroll tax credit provides up to $26,000 per employee, making it a powerful tool for businesses struggling with financial recovery.

However, many businesses are still unsure if they qualify or if they missed their chance to apply. The good news? You can still claim the ERTC retroactively—but eligibility requirements must be met.

In this guide, we’ll break down who qualifies, who doesn’t, and how to claim your ERTC refund before the deadlines pass.

1. What is the Employee Retention Tax Credit (ERTC)?

The ERTC was introduced under the CARES Act (2020) and expanded through subsequent legislation to support businesses that kept employees on payroll despite economic hardships caused by the pandemic.

ERTC Benefits:

✔ Refundable payroll tax credit—businesses receive cash back even if they owe no taxes.
✔ Available for wages paid in 2020 & 2021.
✔ Up to $5,000 per employee for 2020.
✔ Up to $21,000 per employee for 2021.
✔ Can be claimed retroactively by amending payroll tax filings.

💡 Many businesses that initially thought they didn’t qualify are now realizing they do!

2. Who Qualifies for ERTC?

To qualify for the Employee Retention Tax Credit, businesses must meet one of two eligibility requirements:

✅ Option 1: Significant Decline in Gross Receipts

Businesses qualify if they experienced a substantial revenue drop compared to pre-pandemic levels.

• 2020 Qualification:
  ✔ A 50% or greater decline in any quarter compared to the same quarter in 2019.

• 2021 Qualification:
  ✔ A 20% or greater decline in any quarter compared to the same quarter in 2019.

💡 If your business saw a drop in revenue in 2020 or 2021, you likely qualify for ERTC.

✅ Option 2: Full or Partial Suspension of Business Operations

Even if revenue didn’t drop significantly, a business can still qualify if it was affected by government-mandated restrictions that caused a full or partial suspension of operations.

✔ Examples of Full Suspension:

• A restaurant forced to close indoor dining due to state mandates.

• A salon required to shut down completely during lockdowns.

• A gym forced to close due to local COVID-19 restrictions.

✔ Examples of Partial Suspension:

• A retail store that could only operate at 25% capacity due to government restrictions.

• A manufacturer forced to reduce production due to social distancing rules.

• A healthcare provider that had to cancel elective procedures due to state orders.

💡 Key Rule: If government orders impacted 10% or more of business operations, it may qualify as a partial suspension—making the business eligible for ERTC.

3. Who Does NOT Qualify for ERTC?

While many businesses can claim ERTC, some do not meet eligibility criteria.

❌ Businesses That Do NOT Qualify:

🚫 Businesses that opened after February 15, 2020 (except for Recovery Startup Businesses).
🚫 Businesses that did not experience a revenue decline or government-mandated restrictions.
🚫 Businesses that closed permanently and had no payroll expenses in 2020 or 2021.
🚫 Sole proprietors or independent contractors without W-2 employees.

💡 If your business had employees, was operating before COVID-19, and faced revenue losses or restrictions, you likely qualify.

4. Can You Get ERTC If You Took a PPP Loan?

✅ Yes! You Can Claim Both ERTC & PPP

Initially, businesses that received a Paycheck Protection Program (PPP) loan were not eligible for ERTC. However, new legislation changed the rules, allowing businesses to claim both—as long as they don’t use the same payroll wages for both programs.

💡 Strategy:
✔ Use PPP funds for some wages and claim ERTC for the remaining eligible payroll costs.
✔ Businesses that had leftover payroll expenses beyond PPP forgiveness can likely claim ERTC.

5. How to Claim ERTC Before the Deadline

Even if you haven’t applied yet, you can still claim ERTC retroactively.

Step 1: Gather Documentation

✔ Payroll records from 2020 and 2021.
✔ Quarterly revenue reports from 2019-2021 to check for declines.
✔ Government orders or restrictions that impacted operations.
✔ PPP loan records (if applicable) to separate wages.

Step 2: File an Amended Payroll Tax Return (Form 941-X)

✔ Businesses claim the ERTC by filing Form 941-X (Adjusted Employer’s Quarterly Federal Tax Return).
✔ The IRS will issue a refund check for eligible businesses.

📅 ERTC Deadlines:
📌 April 15, 2024 – Final deadline to claim 2020 wages.
📌 April 15, 2025 – Final deadline to claim 2021 wages.

💡 The sooner you apply, the faster you receive your refund.

6. Why It’s Important to Act Now

🚨 IRS Backlogs Are Delaying Refunds

• ERTC claims are still being processed, but delays can take months.

• Filing early ensures you receive your refund faster.

🚨 The IRS Is Increasing Audits on ERTC Claims

• The IRS has issued warnings about fraudulent ERTC “mills” that encourage businesses to apply without proper qualification.

• Ensure your claim is accurate and compliant by working with a trusted tax professional.

🚨 Once the Deadline Passes, You Can’t Claim ERTC

• If you don’t file before April 2024 (for 2020 wages) and April 2025 (for 2021 wages), you will miss your chance to claim this refund permanently.

Don’t Miss Out on Your ERTC Refund

The ERTC program offers a major financial boost for businesses that kept employees on payroll during the pandemic. Even if you didn’t initially apply, you may still qualify and claim your refund retroactively.

💡 Key Takeaways:
✔ Revenue drop (50% in 2020, 20% in 2021) or operational restrictions can qualify businesses.
✔ Both essential and non-essential businesses can be eligible if affected by government mandates.
✔ Businesses that received PPP loans can still claim ERTC—but must separate wages.
✔ The deadline to claim for 2020 is April 15, 2024, and for 2021 is April 15, 2025.

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