ERC for Recovery Startup Businesses

By: Lakshmi Kesaraju, CPA

Your startup may be eligible for a $100,000 tax credit that can be used to offset your payroll taxes.

The Employee Retention Tax Credit (ERTC) program is ever-changing since creation of the credit under the Coronavirus Aid, Relief and Economic Security (CARES) Act in April 2020.  It has been extended and expanded, changing the ERTC program’s end date several times under the American Rescue Plan Act and the Consolidated Appropriations Act, 2021.

With the signing of the Infrastructure Investment and Jobs Act on November 15, 2021, the ERTC end date retroactively changed to September 30, 2021, for most businesses.  However, Recovery Startup Businesses remain eligible to pay qualified wages through December 31, 2021 to claim the credit.

The Treasury Department and Internal Revenue Service issued Notice 2021-49, providing additional guidance on the extension and modification of the ERTC under the American Rescue Plan Act.  Under the new notice, an eligible employer includes Recovery Startups who are no longer subject to the business closure or gross receipts reduction to qualify for the ERC in the third and fourth calendar quarters of 2021.

This is great news for companies that:

• began carrying on trade or business after February 15th, 2020;
• average annual gross receipts that do not exceed $1 million;
• employed one or more employees (other than 50% owners); and
• not been eligible for the ERTC under the other two categories – partial/full suspension of operations or decline in gross receipts;

these startup businesses may save $7,000 per employee on a tax credit, assuming they paid at least $10,000 or more to that employee in Q3/Q4 2021.  This is capped at $50,000 per calendar quarter.  With two quarters to apply this credit, startup companies are looking at a $100,000 tax credit on payroll taxes, assuming you have 7 or 8 employees, subject to fulfilling all other requirements.

The best way to assess whether you are eligible and apply for the ERTC is to contact your CPA firm.  CLA would be happy to evaluate eligibility requirements and assist employers to avail this opportunity and walk you through the process with your payroll provider to claim the credit.