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ERTC Start Up Business - Guide
To Maximizing Your Benefits

Understanding the Employee Retention Credit (ERC) for Recovery Startups

In this comprehensive guide, we explore the Employee Retention Tax Credit (ERTC) for recovery startup businesses and discuss how to maximize its benefits. We'll cover the essential aspects, including understanding the ERC, qualifications, claiming the credit, opportunities for new businesses, and strategies for employee retention.


Definition of a Recovery Startup Business

A recovery startup business refers to a new trade or business that started operations after February 15, 2020. Start-up businesses in this category can qualify for the ERC, aiming to provide relief for businesses affected by COVID-19 and to encourage employee retention.

Key Features of the ERC for Recovery Startups

The Employee Retention Credit is a refundable tax credit offered to eligible business owners who retain their employees during the COVID-19 pandemic. For 2021, businesses can claim up to $7,000 per employee per quarter, subject to specific criteria. 

The American Rescue Plan Act expanded the ERC for recovery startups, providing enhanced benefits and extending the credit until the fourth quarter of 2021.

Updates in the American Rescue Plan Act

The American Rescue Plan Act (ARPA) introduced additional provisions for the ERC, extending the credit through December 31, 2021. ARPA also introduced a higher credit amount, up to $7,000 per employee per quarter or 70% of qualified wages. 

Furthermore, ARPA allows recovery startups with an average annual gross receipts of less than $1 million to qualify for the ERTC if they meet specific criteria.

ERC Eligibility: How to Qualify as a Recovery Startup

Business Start Date and Annual Gross Receipts

To qualify as a recovery startup, the trade or business must have begun operations after February 15, 2020. Additionally, the business's average annual gross receipts must not exceed $1 million. 

This eligibility criterion helps ensure that the credit is targeted toward new, small businesses aiming to recover from the pandemic's economic impact.

Decline in Gross Receipts

A significant decline in gross receipts is one of the primary conditions for claiming the ERTC. While this factor is not explicitly applicable to recovery startups, businesses that started in 2020 can need to demonstrate a decline in gross receipts compared to 2019 or base their eligibility on other qualifications like suspension of operations due to government restrictions.

Impact of the Infrastructure Investment and Jobs Act

The Infrastructure Investment and Jobs Act (IIJA) terminated the ERC for the fourth quarter of 2021, except for recovery startups that meet the specific criteria. As such, qualified recovery startups can still claim the employee retention credit for the last quarter of 2021, according to the provisions in the IIJA.

Claiming the ERTC: Process and Requirements

How to Claim the ERTC on your Payroll Tax Return

Businesses can claim the ERTC on their payroll tax returns by reducing their federal employment tax deposits and requesting advance payment from the IRS. Form 7200, Advance Payment of Employer Credits Due to COVID-19, serves as the applicable form for these requests. It's crucial to work with a tax professional to help ensure proper compliance with IRS guidelines.

Quarter-Specific Considerations for Claiming the ERTC

Keep in mind the updates and changes in legislation when claiming the ERTC, especially for each quarter. The credit was modified in 2021, providing businesses with more opportunities to claim higher amounts, while recovery startups could claim the credit for the fourth quarter of 2021.

Documentation and IRS Compliance

Maintaining proper documentation and compliance with IRS requirements is vital when claiming the ERTC. Work closely with a tax professional to ensure your business is eligible for the credit and that all necessary paperwork and documentation are in order.

New Businesses Started in 2020 and Their ERTC Opportunities

Comparing ERC Benefits for 2020 and 2021

For businesses started in 2020 or 2021, it's essential to compare the ERC benefits across both years. The credit underwent significant changes, including higher credit amounts, new provisions for recovery startups, and more opportunities to qualify. Evaluate the differences and assess your eligibility to maximize the benefits.

Conditions for Claiming ERTC as a New Business in 2020

To qualify for the ERTC in 2020, businesses should have experienced a full or partial suspension of operations due to government restrictions or a significant decline in gross receipts. For recovery startups, the specific decline in gross receipts and suspension conditions may not be directly applicable, but they need to meet other eligibility criteria.

Maximizing ERTC for Companies Started in the Fourth Quarter

Companies that began operations during the fourth quarter of 2020 or 2021 can still maximize ERTC benefits by evaluating their eligibility across both years and taking advantage of the provisions under the ARPA and IIJA. Ensuring proper documentation and working with a tax professional is crucial to fully utilize the credit and boost recovery.

Strategies for Employee Retention and Maximizing ERC Benefits

Effective Steps to Retain Employees and Build Loyalty

Retention practices play a crucial role in maximizing the ERC's benefits. Implementing effective strategies to retain employees, such as offering competitive salaries, recognizing employee achievements, and providing professional development opportunities, can help you yield long-term benefits from the ERTC.

Predicting ERC Benefit Growth for 2022

Although the ERTC has ended for most businesses, recovery startups should continue to monitor legislative changes and updates on the credit. Assessing the potential to maximize benefits in 2022 remains essential, as ongoing developments can impact your business's overall recovery strategy.

Long-Term Benefits of Effective Employee Retention Practices

While the ERTC aims to support businesses in retaining employees, developing long-term retention practices contributes to overall business success. Investing in employee well-being, ensuring fair workplace policies, and fostering a positive work environment can all help create a loyal and productive workforce, ultimately driving growth and success for your recovery startup.


ERC Qualification Estimates Form

ERC Qualification Form
Estimate Your Potential ERC Amount

Frequently Asked Questions

What is the definition of a recovery startup business for claiming ERTC?

A recovery startup business is a business that opened or started operations after February 15, 2020. 

These businesses are eligible for the Employee Retention Tax Credit (ERTC) in the third and fourth quarters of 2021 if they meet specific criteria, including having less than $1 million in annual gross receipts.

How can a start-up business qualify for the Employee Retention Tax Credit?

A start-up business can qualify for the ERTC if they meet the following conditions: the company started after February 15, 2020, their annual gross receipts are less than $1 million, and they experience a significant decline in gross revenues or face a government-mandated partial or full suspension of their operations.

How does the IRS define employee wages eligible for the ERTC?

The Internal Revenue Service (IRS) defines employee wages eligible for the ERTC as those paid to employees who are retained and not working, or those who face reduced hours due to the business's financial struggles or government order. 

This includes salaries, tips, and certain employee benefits. Bonuses, severance pay, and independent contractor payments are not considered eligible wages.

What are the maximum credit amounts a recovery startup business can receive?

For a recovery startup business, the maximum credit can reach up to $50,000 per quarter or $100,000 in total for the third and fourth quarters of 2021, providing a significant financial relief to help support their growth and stability.

How can a recovery startup business claim the Employee Retention Tax Credit?

A recovery startup business can claim the Employee Retention Tax Credit by reporting eligible wages and health plan expenses on their quarterly federal employment tax return (Form 941) and reducing their employment tax deposits accordingly.

Can a business apply for the ERTC retroactively?

Yes, a business can apply for the ERTC retroactively by amending their previously filed employment tax return (Form 941-X) to claim the credit for eligible quarters. 

For recovery startup businesses, this specifically applies to the third and fourth quarters of 2021.

Are the ERTC rules for new businesses different from those for existing businesses?

Yes, the ERTC rules for new or recovery startup businesses are slightly different from those applicable to existing businesses. 

Recovery startup businesses have a separate eligibility criterion ($1 million gross receipts) rather than meeting the gross receipts decline threshold or facing a government-mandated suspension, which applies to existing businesses.

Can a business claim both the ERTC and the Paycheck Protection Program (PPP) loan?

Yes, a business can benefit from both the ERTC and the PPP loan. However, they cannot claim the ERTC on the same wages used for PPP loan forgiveness. 

To maximize benefits, businesses should be mindful of using different payroll expenses for each program.

How does the retention tax credit for recovery impact a business's payroll taxes?

The retention tax credit for recovery allows businesses to reduce their federal payroll tax liability by the amount of ERTC they are eligible to claim. 

This can significantly lower the business's tax burden and provide financial relief to help them recover and grow during challenging times.

Are there any specific industries or types of businesses that cannot qualify for the ERTC?

There are no specific prohibitions on industries or business types for the ERTC. 

As long as a recovery startup business meets the eligibility criteria detailed by the IRS, they can qualify for and claim the Employee Retention Tax Credit.

In Summary

The Employee Retention Tax Credit (ERTC) provides valuable opportunities for recovery startup businesses to maximize their benefits. By understanding the key features of the ERTC and the eligibility criteria for recovery startups, businesses can navigate the application process more effectively. The updates introduced in the American Rescue Plan Act (ARPA) expanded the credit and extended its availability, offering enhanced benefits and higher credit amounts. It's crucial for businesses to stay informed about legislative changes, such as the impact of the Infrastructure Investment and Jobs Act (IIJA), to ensure they can continue to claim the ERTC appropriately.

To successfully claim the ERTC, businesses should familiarize themselves with the process and requirements, including reducing federal employment tax deposits and requesting advance payments from the IRS. Maintaining proper documentation and compliance with IRS guidelines is essential throughout the application process. For recovery startups that began operations in 2020, comparing the ERTC benefits across different years is crucial to maximize their eligibility and take advantage of the provisions under ARPA and IIJA.

Employee retention strategies are key to optimizing the benefits of the ERTC. By implementing effective measures to retain employees and foster a positive work environment, businesses can build loyalty and reap the long-term benefits of employee retention practices. Looking ahead, monitoring legislative developments and assessing potential benefits for the future can contribute to an overall recovery strategy for the business.

In conclusion, the ERTC serves as a valuable tool for recovery startup businesses, offering financial relief and incentivizing employee retention. By understanding the eligibility criteria, navigating the claiming process diligently, and prioritizing effective employee retention strategies, businesses can maximize their benefits from the ERTC and position themselves for long-term success and growth.