# Employee Retention Tax Credit is a lifeline for businesses
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2023-05-02
Category: BUSINESS
Category URL: https://financedigest.com/category/business
Meta Title: Maximise Your ERTC Benefits: A Guide for Businesses
Meta Description: Discover how the ERTC can help your business pay employees during the COVID-19 pandemic. Learn eligibility requirements, claim processes, and benefits.
URL: https://financedigest.com/employee-retention-tax-credit-is-a-lifeline-for-businesseshtml

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# Employee Retention Tax Credit is a lifeline for businesses

The COVID-19 pandemic brought many unexpected challenges to small businesses. And, for many, it meant closing operations for good. However, some business owners found a way to continue operating and paying their employees despite the hardships and uncertainties.

In March 2020, the federal government took action to support business owners who kept their employees on the job, despite bleeding [bottom lines](https://www.financedigest.com/why-investing-in-wellbeing-can-boost-your-bottom-line.html "Why investing in wellbeing can boost your bottom line") and introduced the Employee Retention Tax Credit (ERTC) to help pay employees during the COVID-19 pandemic when businesses were closed. Because the ERTC requirements and guidelines have changed over time, it is confusing for some to track where things [stand today](https://www.financedigest.com/a-brief-look-at-the-buy-to-let-market-as-it-stands-today.html "A Brief Look at the Buy-to-Let Market as it Stands Today"). Therefore, unfortunately, facing a mountain of red tape, many who could qualify for the Employee Retention [Tax Credit](https://www.financedigest.com/automakers-scramble-to-decode-new-u-s-ev-tax-credits.html "Automakers scramble to decode new U.S. EV tax credits") (ERTC) have left money on the table. Fortunately, taking advantage of the program is more straightforward than they realize.

## **The credit explained**

The ERTC is a refundable [tax credit available to businesses](https://www.financedigest.com/making-tax-digital-businesses-still-not-ready-for-phase-2.html "Making Tax Digital: Businesses still not ready for Phase 2"), colleges, universities, hospitals, and not-for-profits that had a drop in revenue or were affected by government lockdown orders during the pandemic. A qualifying [business owner can claim the credit](https://www.financedigest.com/the-definitive-guide-on-how-to-get-a-bad-credit-business-loan.html "The Definitive Guide on How to Get a Bad Credit Business Loan") retroactively. Unlike many of the assistance programs the government put in place, **it is not a [loan and does not need](https://www.financedigest.com/common-uses-for-bridging-loans-and-what-youll-need-to-get-one.html "Common Uses for Bridging Loans and What You’ll Need to Get One") to be repaid.**

[Businesses may be able to recover money](https://www.financedigest.com/how-cloud-computing-saves-businesses-money.html "How cloud computing saves businesses money") even if they did not have a loss of revenue, received Paycheck Protection Program (PPP) funding or ERTC credits previously. Businesses can claim up to $5,000 per employee for wages paid in 2020 and up to $21,000 per employee in 2021. Actual amounts will vary depending on how much the eligible employees were paid in wages and [health care](https://www.financedigest.com/health-care-information-systems-market-growth-set-to-surge-significantly-during-2018-2026.html "Health Care Information Systems Market Growth Set to Surge Significantly during 2018 – 2026") benefits.

## **Eligibility**

_Some of the qualifiers include:_

- Having employees on payroll (W-2)
- Experiencing sales decrease in 2020 or 2021
- Needing to [change the business](https://www.financedigest.com/business-is-changing-is-your-culture-changing-with-it.html "Business is changing – is your culture changing with it?") structure, limit capacity, and partially shut down
- Modifying business to comply with [COVID-19 regulations](https://www.financedigest.com/chinas-tencent-reports-first-revenue-drop-as-gaming-regulations-and-covid-19-bite.html "China’s Tencent reports first revenue drop as gaming regulations and COVID-19 bite"), even if it kept operating during the pandemic
- Suppliers failed to deliver critical [supplies to you because they were shut](https://www.financedigest.com/europes-alternatives-if-russia-shuts-off-gas-supply.html "Europe’s alternatives if Russia shuts off gas supply") down
- Business started in 2020

To qualify, a [business must](https://www.financedigest.com/a-taxing-issue-ten-tax-invoicing-pitfalls-that-international-businesses-must-avoid.html "A taxing issue: Ten tax invoicing pitfalls that international businesses must avoid") have had a drop in revenue by 50 percent or more in any quarter of 2020 or by 20 percent or more in any quarter of 2021. Alternatively, [businesses can claim the credit if the lockdowns forced them to fully or partially suspend operations or reduce](https://www.financedigest.com/simple-ways-to-reduce-business-costs.html "Simple Ways to Reduce Business Costs") hours of operation.

Some business owners may have hesitated to apply for the ERTC program because, early in the pandemic, they were forced to choose between the Payroll Protection Program, which was administered by the [Small Business](https://www.financedigest.com/foolproof-local-marketing-strategies-for-small-businesses.html "Foolproof Local Marketing Strategies for Small Businesses") Administration, and the ERTC, administered by the IRS. However, the government [changed the rules](https://www.financedigest.com/german-regulator-stays-vigilant-as-meta-changes-vr-headset-rules.html "German regulator stays vigilant as Meta changes VR headset rules") in late 2020, and now businesses can qualify for both programs.

## **Claiming the credit**

Some [small business](https://www.financedigest.com/4-ways-small-businesses-can-save-money-while-outsourcing.html "4 Ways Small Businesses Can Save Money While Outsourcing") owners may have decided not to pursue the credit because the paperwork is complicated, and there was no guarantee that they would be approved. Forced to choose between [spending hours on complicated IRS forms or paying](https://www.financedigest.com/growth-will-pay-for-uk-government-spending-plans-minister-says.html "Growth will pay for UK government spending plans, minister says") an accountant to do it for them, they chose to leave the money unclaimed. However, if you kept your workers on the job during the pandemic and your business experienced a drop in revenue or was affected by a [lockdown order](https://www.financedigest.com/n-korea-reports-first-covid-outbreak-orders-lockdown-in-gravest-emergency.html "N.Korea reports first COVID outbreak, orders lockdown in “gravest emergency”"), there’s no reason not to apply for the ERTC.

There IRS requires that [eligible employers use the correct filing form for each quarter that they wish to claim](https://www.financedigest.com/lets-get-fiscal-how-to-understand-rd-tax-claim-eligibility.html "Let’s get fiscal – How to understand R&D Tax Claim Eligibility") the credit. The good news is that the form can be used to file for up to three [years after the original payroll](https://www.financedigest.com/how-payroll-will-shape-up-for-the-year-ahead.html "How payroll will shape up for the year ahead") taxes were due. It might sound difficult to navigate but with the right help it isn’t.

## **Using the help of a law firm**

[Business owners are encouraged to seek](https://www.financedigest.com/businesses-seek-better-access-to-data-to-support-environmental-objectives-bright-data-research-reveals.html "Businesses seek better access to data to support environmental objectives, Bright Data Research Reveals") the help of a law firm to apply for the ERTC. It only takes 45 minutes of a [business owner’s time for a firm to complete and submit the application](https://www.financedigest.com/from-sec-edgar-to-business-applications-exploring-an-alternative-to-manual-data-extraction.html "From SEC EDGAR to Business Applications: Exploring an Alternative to Manual Data Extraction") on their behalf, saving them valuable time and money.

Among the many benefits, a law firm ensures that [business owners apply to ERTC correctly and at a minimal cost](https://www.financedigest.com/esg-prepared-why-ignoring-esg-is-a-costly-business.html "ESG Prepared: Why Ignoring ESG is a Costly Business"). The main reason is that unlike accountants or payroll companies who make you pay upfront, our firm, for instance, will only charge a tax-deductible fee if we [successfully recover money for your business](https://www.financedigest.com/the-collective-power-of-partnerships-integrating-payment-solutions-to-drive-business-success.html "The collective power of partnerships: integrating payment solutions to drive business success") and defend you at no cost if audited by the IRS. [Business owners have nothing to lose](https://www.financedigest.com/royal-mail-says-uk-business-losing-one-million-pounds-a-day-amid-union-clash.html "Royal Mail says UK business losing one million pounds a day amid union clash").

[Business owners have up to three years](https://www.financedigest.com/nfts-live-streams-sustainable-businesses-and-social-shopping-what-to-prioritise-in-commerce-this-year.html "NFTs, live streams, sustainable businesses and social shopping – what to prioritise in commerce this year") from when they filed their taxes for the relevant tax quarter to apply.

#### ![](https://prod.superblogcdn.com/site_cuid_cm5qst7v3003gwirgwqtxn8i8/images/blom-headshot2-1736814082099-compressed.jpg)  About the Author Michael Blom:

As partner at The Lake Law Firm, Michael Blom focuses on [personal injury](https://www.financedigest.com/double-taxation-of-personal-injury-plaintiffs.html "Double Taxation of Personal Injury Plaintiffs"), pharmaceutical

drug injury, [medical device](https://www.financedigest.com/unabated-rise-in-internal-complexities-to-boost-the-demand-for-medical-devices.html "Unabated rise in Internal Complexities to Boost the Demand for Medical Devices") liability and mass tort litigations. Mr. Blom works with attorneys

nationwide on mass tort case [acquisition and co-counseling services](https://www.financedigest.com/talent-acquisition-staffing-technology-and-services-market-to-reach-usd-196-1-bn-by-2028-comprehensive-research-report-by-fmi.html "Talent Acquisition & Staffing Technology and Services Market to reach USD 196.1 Bn by 2028 – Comprehensive Research Report by FMI"). Mr. Blom also works with

[business owners to recover refundable tax](https://www.financedigest.com/what-you-need-to-know-about-tax-savings-for-businesses-in-las-vegas-nv.html "What You Need to Know About Tax Savings for Businesses in Las Vegas NV") credits through the employee retention credit.


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