The Employee Retention Tax Credit program (ERTC) is a federal program created by Congress in the CARES Act which provides qualifying business owners tax refunds of up to $26,000 per W-2 employee. Most businesses, even essential businesses, qualify under the "Government Order" test, although there is also a "Gross Receipts" test.
Employers that had 500 or fewer full-time W-2 employees in 2019 can qualify for the 2021 tax credits. Employers that had 100 or fewer full-time W-2 employees in 2019 can qualify for both 2020 and 2021 tax credits. Employers with over 500 full-time W-2 employees in 2019 may be eligible for some limited credits.
There are two tests for qualification purposes: The Gross Receipts test and the Government Orders test. The Gross Receipts test is met when the business suffered a decline in gross revenue of 50% in 2020 from the same quarter of 2019 and a decline of 20% in 2021 from the same quarter of 2019. The Government Orders test is met when a business suffered a full or partial suspension of its operations as a result of a “government” order (federal, state, local, or health department) limiting commerce, travel, or group meetings. Any disruption of the business operations due to a government order qualifies the business for tax credits, whether or not it was deemed an essential business. There is no revenue component to the Government Orders test.
A qualifying business can receive up to $26,000 per employee; $5,000 for 2020 and $21,000 for 2021*. “Wages” include employer healthcare contributions.
*2020: 50% of the first $10,000 in wages for each employee.
*2021: 70% of the first $10,000 in wages for quarters 1, 2, and 3.