The employee retention tax credit (ERTC/ ERC) gives employers credits for keeping their employees on payroll during COVID-19. This credit can be very valuable for employers, and to qualify, you just need to have paid wages when your business was partially or fully shut down or experiencing a significant drop in revenue during the COVID-19 pandemic.
These are the basic terms for this credit, but the actual rules are a lot more complicated. They also vary based on when your business opened and your number of employees, and there are different rules based on whether you’re claiming the ERTC for 2020 or 2021.
This employee retention credit comparison chart breaks down the details for you. It shows the rules and stipulations for claiming this credit on 2020 payroll taxes versus 2021 payroll taxes. Take a look at the employee retention credit comparison chart to see whether your business can qualify for this credit.
| ERTC Rule | 2020 | 2021 |
| The time period for most businesses to claim the ERTC on qualifying wages | Qualifying businesses can claim this credit on qualifying wages paid from March 13, 2020, to December 31, 2020. | Qualifying businesses can claim the credit on qualifying wages paid between January 1, 2021, to September 30, 2021. |
| The time period for recovery start-up businesses to claim the ERTC on qualifying wages. | Recovery start-up businesses can claim this credit on qualifying wages paid from March 13, 2020, to December 31, 2020. | Recovery start-up businesses can claim the ERTC on qualifying wages paid from January 1, 2021, to December 31, 2021. |
| Employers who are eligible for the ERTC | Any employer who runs a trade, business, or tax-exempt organization can qualify for the ERTC in 2020 as long as they meet the other criteria. Governments, their agencies, and instrumentalities don’t qualify for the 2020 credits. | Any employer who runs a trade business or tax-exempt organization can still qualify in 2021, as long as they meet the other criteria. Government employers that are 501 tax-exempt organizations and colleges and universities with the purpose of providing medical or hospital care can also claim this credit on qualifying wages in 2021. |
| Rules to qualify as a recovery start-up business | The business must have started after February 15, 2020, to qualify as a recovery start-up business. It must have averaged less than $1 million in annual gross receipts for the three-year period that precedes the calendar quarter in which the credit is claimed. | The definition of a recovery start-up business is the same in 2021 as it was in 202. |
| How to qualify for the ERTC based on a decline in revenue | The business’s revenue in any quarter of 2020 must be less than 50% of what it was for the same quarter in 2019. Then, the business can continue to claim the credit until its revenue is greater than 80% of the amount from the same quarter in 2019. | The business’s revenue in a quarter must be less than 80% of its revenue during the same quarter of 2019. If the business was not in existence in 2019, it can compare its 2021 revenue numbers to the same quarter in 2020. |
| Example of qualifying for the employee retention tax credit based on a decline in gross receipts. | Imagine a business’s revenue was $30,000 in the first quarter of 2020. Its revenue was $31,000 for the first quarter of 2021. The 2021 revenue from this quarter was 97% of the revenue from the same quarter in 2019. This is not a significant drop, so the business doesn’t qualify for this quarter. Now let’s say the business’s revenue was $15,000 in the second quarter of 2020, and it was $31,000 for the second quarter of 2019. This is more than a 50% decline, so the business qualifies for the employee retention credit. The business’s revenue was $20,000 during the third quarter of 2020. It was $29,000 for the third quarter of 2019. This means that the business had 69% of its revenue from the same quarter in 2019 so it also qualifies for this quarter. The business has $25,000 in revenue for the fourth quarter of 2020, and it had $28,000 in revenue during the fourth quarter of 2019. This is 89% of its revenue from the same quarter in 2019. The business’s revenue has gotten above 80% of what it was in the same quarter in 2019. The business doesn’t qualify this quarter. |
Imagine that a business’s revenue is $30,000 in the first quarter of 2021. It was $40,000 in the first quarter of 2019. The 2021 revenue is 75% of the revenue from the same quarter in 2019. This is less than the 80% threshold, so the business qualifies for the ERTC for this quarter. Say the business wasn’t operating in 2019. It uses its 2020 revenue numbers as a comparison. Its revenue in the first quarter of 2021 was $30,000 and its revenue for the first quarter of 2020 was $28,000. This is 93% of its revenue from the same quarter of the previous year. This business does not qualify because its revenue needed to be less than 80% of what it was in the same quarter from the previous year to qualify. |
| How to qualify for the ERTC based on operational suspensions | You don’t have to show a decline in revenue if you experienced a full or partial shutdown of operations due to COVID-19. The shutdown or operational restrictions had to affect at least 10% of your business, in general. | The rules are the same as they were in 2020 if you want to claim the ERTC based on a full or partial suspension of operations in 2021. . |
| Example of qualifying for the ERTC based on a partial or full shut down | You run a restaurant. Your governor issues stay-at-home orders and you must close the restaurant completely. You continue paying your employees. You qualify for the credit because you paid wages while dealing with a complete shutdown of your business operations. The government allows restaurants to reopen, but they can only do take-out orders. Take-out orders were traditionally only about 10% of your business. You have been required to suspend the majority of your operations so you qualify for the credit. The government allows you to welcome diners to your restaurant, but you can only seat at half capacity. More than half of your operations have been suspended. You only need a 10% reduction in operations so you also qualify in this scenario. |
The requirements based on a partial or full shutdown are the same in 2021 as they were in 2020. The same examples apply. |
| Eligibility requirements for recovery start-up businesses | Recovery start-up businesses must have suffered a full or partial suspension of operations to claim the ERTC in 2020. They don’t have 2019 sales that they can compare to their 2020 numbers so they cannot qualify based on a decline in revenue. They otherwise have the same qualifying rules as regular businesses for 2020. | Recovery start-up businesses have the same eligibility requirements as any other business for the first two quarters of 2021. They can claim the credits for the third quarter of 2021 as long as they meet the requirements to be considered a recovery start-up business and they don’t meet the requirements to claim the credit based on a decline in revenue or a partial or complete shutdown. They can claim the credit based on a decline in revenue or a suspension of operations for the third quarter, but in this situation, they should apply as a regular business and not as a recovery start-up business. They can claim the credit for the fourth quarter of 2021 as a recovery start-up business, even if they do meet the revenue decline or shutdown requirements. |
| Wages that qualify for the credit | Wages paid to individuals who were working or not working qualify for businesses with 100 or fewer full-time employees in 2019. Only wages paid to employees who were not working qualify for business with more than 100 full-time employees in 2019. | Wages paid to employees who were working or not working by businesses with 500 or fewer full-time employees in 2019 qualify for the ERTC in 2021. Wages paid to employees who were not working by employers with more than 500 full-time employees in 2019 can qualify. Businesses that weren’t operating in 2019 can use their 2020 employee numbers to determine if they are under or over the 500-employee threshold. |
| Example of qualifying wages | An employer had 50 employees in 2019. They paid qualifying wages to employees who were working in 2020. They qualify as long as they meet the other requirements. An employer had 103 employees in 2019. They paid wages to employees who were working in 2020. They don’t qualify for this credit. They can only qualify if they paid employees who were not working. An employer had 103 employees in 2019. They paid wages to employees even though they were furloughed and not working. They can qualify to claim the ERTC in 2020 as long as they meet the other criteria. |
An employer had 103 employees in 2019. They paid them while they were working in 2021. They can qualify for the 2021 credits as long as they meet the other requirements. An employer had 502 employees in 2019. They paid their employee to work in 2021. They can’t qualify for the 2021 credits because businesses of this size only qualify if they paid employees who were not working. An employer had 504 employees in 2019. They paid wages to employees who were not working in 2021. They can qualify for the ERTC as long as they meet the other qualification criteria. |
| Special rules for severely distressed businesses | There are no special rules for severely distressed businesses. | Employers that were severely financially distressed can claim the credit on all wages paid in the third quarter of 2021. To be considered severely distressed, the employer must have had revenue that was less than 10% of their revenue from the same calendar quarter in 2019. |
| Amount of wages eligible for the ERTC | Up to $10,000 per employee per year. This includes wages and qualifying healthcare expenses. | Up to $10,000 per employee per quarter. This includes wages and qualifying healthcare expenses. |
| Percent of qualified wages that are eligible for the ERTC | 50% of qualified wages | 70% of qualifying wages |
| Maximum amount of the employee retention credit | $5,000 per employee for the year. | $7,000 per employee per quarter. The 2021 credits can be worth up to $21,000 per employee for most businesses. The credits can be worth up to $28,000 per employee for recovery start-up businesses, with a maximum of $50,000 total per quarter for the last two quarters of 2021. |
| Rules for businesses that received a Paycheck Protection Plan (PPP) loan | Businesses that received a PPP loan can still claim the ERTC. They cannot claim the ERTC on wages that they paid with a PPP loan that was forgiven. | The same rule applies in 2021. |
| Deadlines for claiming the credit | The deadline for Q1 credits is May 1, 2023. The deadline for Q12 credits is July 31, 2023. The deadline for Q3 credits is October 31, 2023. The deadline for Q4 credits is January 31, 2024. | The deadline for c credits is April 30, 2024. The deadline for Q2 credits is July 31, 2024. The deadline for Q3 credits is October 31, 2024. The deadline for Q4 credits is January 31, 2025. |
The Overall Outcome of the Employee Retention Credit 2020 vs 2021
The ERTC can be complicated. It’s even confusing to most bookkeepers and tax professionals because they don’t know all the intricate rules. This means that business owners generally can’t rely on their usual bookkeepers or tax pros to claim this credit, so they instead need to turn to a company that focuses on this credit.
ERC Today was developed specifically to help employers optimize the ERTC. We have created this employee retention tax credit comparison chart to give you an overview of the credit, and now, we’d like to help you claim this credit. Get started with our free pre-qualifier tool, or contact us directly to talk more about ERTC eligibility.
