Employee Retention Tax Credit: Frequently Asked Questions

*The IRS has stopped processing new Employee Retention Tax Credit (ERTC) claims for the time being. For more information, visit IRS.gov.

The Small Biz Ahead community has been buzzing this month with questions about the Employee Retention Tax Credit. I’ve been responding to questions on specific posts throughout the month. 

A little background: the Employee Retention Tax Credit is a potentially significant refund that you can receive based on the employer taxes you paid during certain quarters of 2020 and 2021. There’s still time to apply for this. Learn more in our ERTC article.

Here are a few questions that came up in our monthly Q&A.

Q: Is there a minimum number of employees you need to qualify for this credit?

A: There is not. I have clients with as few as one employee who were able to amend their payroll tax returns and receive this credit. Just be aware that owners and family members don’t qualify as employees.

Q: I’m getting emails from companies promising me big refunds. Are these legitimate?

A: Most likely not. Unfortunately, there are a lot of scammers out there claiming they can get big refunds for businesses in return for up front fees. The IRS has even jumped in to warn taxpayers of this risk. 

To see if you’re eligible, your best bet is to talk to your accounting firm or payroll service. If your accountant isn’t experienced with the credit, they can refer you to someone who is. Most big payroll companies also provide the service.

Generally, you should not be charged to determine if you’re eligible for the credit. But if you are, the company filing the amendment requesting the refund may either charge you an hourly fee for their services or take a percentage of what’s refunded.

Q: Can new businesses qualify?

A: It depends on how you define “new.” Your startup may be eligible if you meet any one of the following criteria:

  • You started you business on or after February 15, 2020
  • Your annual gross receipts don’t exceed $1 million for 2020 and 2021 tax years
  • You have one or more W2 employees, not including owner-operators or family members.

Q: Do nonprofits qualify?

A: Yes, they do. Remember that this is a refund on payroll taxes paid, not income taxes, so nonprofits are definitely eligible to claim this tax credit.

Q: What about family members?

A: Owner-operators and their family members are excluded from the definition of employee.

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View Comments (30)

  • I've received email from The IRS stating that employers who have received ERC credits/refunds have to file amended tax returns to recapturer the employee 941 payroll tax expense for the period(s) covered. However, the Department of Treasury, Internal Revenue Service, letter that was sent with the notice of Overpayment states," Next steps Report the $$$ in interest as taxable income on your tax return for this year." No mention about filing amended tax returns for the "Overpayment"?

  • My daughter received payroll during the ERTC time periods but she is a small minority owner in our business. Isn't there a differentiation between a 2% ownership and a 20% ownership? Or a cutoff etc. so that we can participate in it? Payroll taxes are payroll taxes and they cost the small business just the same. Is there any trend to amend the requirement for family members with small minority ownership?

    • You wouldn’t be able to include any family members – including your daughter – in the ERTC calculation, unfortunately.

  • We have 4 businesses & get daily emails regarding the ERC. BUT like to know if we qualify. Thanks

    • My recommendation is to talk to a reputable payroll service provider or an accountant experienced in filing for this credit. They can best determine your eligibility.

  • I don't understand why they excluded family members when we do pay payroll taxes just as any other employee and "family" owned small businesses usually are made up of family members.

    • I am a small payroll business and I process ERTC for small businesses with as little as 1 employee. If interested, please contact me.

  • I am a small tutoring business that has only ever had part time employees as we are only open 20-25 hours per week. The most any employee ever made per year was around $9000. I was able to remain open through COVID and did keep about half staff during the down time. Is this eligible and is it worth it?

  • If an employer received PPP benefits for an employee, can that employer also claim a Retention Tax Credit on the same employee?

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