ERTC for Essential vs. Non-Essential Businesses: Are You Eligible?

The Employee Retention Tax Credit (ERTC) was created to help businesses that continued to pay employees during the COVID-19 pandemic. While many business owners assume that only non-essential businesses qualify, the truth is that both essential and non-essential businesses may be eligible—depending on their specific circumstances.

Understanding how government-mandated restrictions, revenue declines, and operational disruptions impact ERTC eligibility is crucial. This guide will break down the differences between essential and non-essential businesses, who qualifies, and how to claim the tax credit.

1. What is the ERTC and Why Does It Matter?

The Employee Retention Tax Credit (ERTC) is a refundable payroll tax credit designed to help businesses retain employees during periods of economic hardship. The credit was introduced in the CARES Act (2020) and expanded under later legislation, allowing more businesses to qualify.

Key Benefits of ERTC:

✅ Up to $26,000 per employee (maximum of $5,000 for 2020, $21,000 for 2021).
✅ Available for wages paid between March 13, 2020 – September 30, 2021.
✅ Refundable—meaning businesses receive a direct payment even if they owe no taxes.
✅ Can be claimed retroactively by filing an amended payroll tax return (Form 941-X).

💡 Many businesses are still eligible and can claim the credit until April 2025!

2. ERTC Eligibility: Essential vs. Non-Essential Businesses

When determining eligibility, the IRS does not categorize businesses as “essential” or “non-essential” in a way that automatically disqualifies or qualifies them. Instead, eligibility depends on two main criteria:

1️⃣ Experiencing a significant decline in gross receipts
2️⃣ Being subject to a full or partial suspension of operations due to government orders

A. Non-Essential Businesses & ERTC Eligibility

Many non-essential businesses were directly impacted by government-mandated closures, making them strong candidates for ERTC eligibility.

💡 Examples of Eligible Non-Essential Businesses:
✔ Restaurants forced to close indoor dining or operate at limited capacity
✔ Retail stores that were shut down due to stay-at-home orders
✔ Entertainment venues (movie theaters, concert halls, casinos) that were forced to close
✔ Gyms and fitness centers required to shut down or limit capacity
✔ Salons and personal care businesses facing operational restrictions

Because these businesses were fully or partially suspended by government orders, they typically qualify for the ERTC for the duration of the restriction.

B. Essential Businesses & ERTC Eligibility

Essential businesses were allowed to continue operating, but this does NOT automatically disqualify them from ERTC.

Essential businesses can qualify if they experienced:
✔ A significant decline in gross receipts
✔ A partial suspension due to government orders that impacted their operations

💡 Examples of Eligible Essential Businesses:
✔ A manufacturer that stayed open but was forced to reduce workforce capacity due to social distancing mandates
✔ A grocery store that remained open but faced supply chain disruptions that significantly limited inventory
✔ A construction company that was allowed to operate but faced delays due to permit restrictions
✔ A healthcare provider that had to suspend elective procedures due to government mandates
✔ A trucking company that operated but couldn’t fulfill contracts due to border restrictions

💡 Even if an essential business remained open, a disruption that affected at least 10% of operations can qualify as a “partial suspension,” making the business eligible for ERTC.

3. How Do You Qualify for ERTC?

To determine eligibility, businesses must meet one of two requirements:

✅ Option 1: Significant Decline in Gross Receipts

✔ 2020: A business qualifies if gross receipts declined by 50% or more in any quarter compared to the same quarter in 2019.
✔ 2021: A business qualifies if gross receipts declined by 20% or more in any quarter compared to the same quarter in 2019.

✅ Option 2: Full or Partial Suspension of Operations

✔ A government order forced the business to fully or partially suspend operations due to COVID-19 restrictions.
✔ A business remained open but faced mandated capacity limits, supply chain disruptions, or industry restrictions that significantly affected its ability to operate.

4. Common Myths About ERTC Eligibility

🚨 Myth 1: “Only non-essential businesses qualify.”
✅ Reality: Essential businesses may qualify if they experienced operational disruptions or revenue losses.

🚨 Myth 2: “My revenue didn’t drop enough, so I can’t claim ERTC.”
✅ Reality: Revenue decline is only one way to qualify—if your business faced government-mandated restrictions, you may still be eligible.

🚨 Myth 3: “My business adapted (e.g., online sales), so I’m not eligible.”
✅ Reality: If your in-person operations were significantly restricted, you may still qualify, even if you found alternative revenue streams.

🚨 Myth 4: “I took a PPP loan, so I can’t get ERTC.”
✅ Reality: Businesses can claim both ERTC and PPP—just not for the same wages.

5. How to Claim ERTC Before the Deadline

Even if you didn’t originally apply for ERTC, you can still claim it retroactively.

Step 1: Gather Required Documents

✔ Payroll records from 2020 and 2021
✔ Gross receipts to determine revenue decline
✔ Government orders that forced operational changes

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

✔ The ERTC is claimed through Form 941-X for each eligible quarter.
✔ A tax professional can help calculate and file for maximum benefits.

Step 3: Wait for Your Refund

✔ The IRS is still processing retroactive claims, and businesses can receive refunds worth thousands (or even millions) of dollars.

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

6. Why It’s Important to Act Now

🚨 ERTC Refund Processing Takes Time

• IRS backlogs mean refunds can take months to process—filing sooner ensures you get paid faster.

🚨 IRS Is Increasing Audits on Fraudulent Claims

• The IRS is cracking down on fraudulent filings—work with a trusted tax professional to ensure accuracy.

🚨 The Opportunity to Claim Will Soon Expire

• Once the deadline passes, businesses will lose the chance to claim thousands (or even millions) in refunds.

Don’t Miss Out on ERTC Benefits

Both essential and non-essential businesses may qualify for ERTC refunds, depending on how government restrictions or revenue declines impacted them. Understanding the full and partial suspension criteria ensures businesses don’t miss out on a major financial opportunity.

💡 Key Takeaways:
✔ Essential businesses CAN qualify if they experienced operational restrictions.
✔ Revenue decline is NOT required—government mandates affecting operations may also qualify businesses.
✔ ERTC claims are still open until April 2024 & 2025—don’t miss the deadline!

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