Recovery Startup Businesses: Claiming the Employee Retention Tax Credit

The COVID-19 pandemic has affected the way we work, shop, learn, and live. For business, the pandemic has created a range of challenges—from compliance with safety mandates to logistics challenges—to staying profitable. What may be surprising is that during the pandemic, a remarkably large number of new startup businesses were formed.

If you started a business on or after February 15, 2020, you may be eligible for the Employee Retention Credit (ERC). What this means is that as a qualifying “recovery startup business” you may qualify for a substantial tax credit.

Let’s take a closer look at the Recovery Startup Business ERC and how it could help your business.

What is the Recovery Startup Business ERC?

Designed to help businesses retain workers during the COVID-19 pandemic, the ERC program originated as part of the CARES Act of 2020 and in elements of the Paycheck Protection Program and Economic Disaster Loan program.

While the periods eligible for ERC ended on September 30, 2021, your business may still claim the credit for the applicable periods available.

What Qualifies As A Recovery Startup Business?

According to the American Rescue Plan Act, new businesses that opened during the pandemic are eligible for the credit. The basic qualifying factors are:

  1. That you started your business on or after Feb 15, 2020, and
  2. That the average annual gross receipts totals less than $1 million
  3. Employs one or more employees (other than 50% owners)

Does My Business Qualify?

Fortunately, the application process for the Recovery Startup Business ERC is relatively straightforward. Here are the essential criteria:

  1. Your business must have one or more employees (not including family members or owner-operators).
  2. Your business must be a startup that began operations on or after Feb 15, 2020.
  3. Your business must have gross receipts totaling under $1 million for the tax years 2020 and 2021, individually.
  4. Your business must NOT be eligible under other ERC requirements—such as proof of significant revenue decline or a loss of business linked to governmentally imposed restrictions ( you still may qualify for the traditional ERC).
  5. Your business paid employees for the 3rd and 4th quarters of 2021.

A Note on New Businesses

If you’ve started a business in the 2nd quarter of 2021, you are not eligible to claim any credit for 2020 (nor for the first two quarters of 2021); however, if you meet the new revenue reduction or government restriction criteria, you may be able to claim credit for these earlier quarters.

What’s the Maximum Amount My Business Can Claim?

Under the Program, you may receive a credit in the amount of $7000 per worker, per quarter, maxing out at $50,000 for the year’s final two quarters. There are a few actions you can take to help maximize your credit.

  1. Keep close track of your gross receipts, ensuring you don’t exceed the $1M annual revenue limit for the tax years 2020 and 2021.
  2. File for the ERC after Q3 and Q4 of 2021 to claim credits.
  3. Maximize employee wages for Q3 and Q4 of 2021.
  4. Remember that owners and their spouses and family members will not qualify as employees.

How Do I Claim My Credit?

To help determine whether you qualify for the Recovery Startup Business ERC, we suggest you work with a professional familiar with business tax law and any recent changes to the ERC. Here at Moskowitz LLP, we’ve built our reputation helping clients like you get the most out of their returns. Our experienced accountants and tax professionals can also help guide you through the paperwork necessary to apply for special programs and credits like the Recovery Business Startup ERC.

To learn more about how Moskowitz LLP can help you claim credits like the ERC, check out our recent webinar on the Employee Retention Tax Credit.

Don’t go it alone. Contact Moskowitz LLP today, and get the peace of mind you deserve.