ERC Eligibility and Beyond: Your Top Employee Retention Tax Credit FAQ

Many employers are still unsure if they’re eligible for an Employee Retention Tax Credit (ERC), especially if they’ve received the PPP loan. Alarmingly, many employers find that their accountants also aren’t mentioning the Employee Retention Credit as they’re filing taxes. Don’t miss out on this opportunity for substantial pandemic assistance. MP’s HR services team addresses the top 9 questions about ERC eligibility.

Top 9 ERC eligibility FAQs

Employee Retention Credit and PPP

Q: If my business received both PPP draws, are we still eligible to receive the ERC?

A: Yes. The only restriction is that employers cannot claim payroll expenses for their ERC that they used PPP funds to pay.

Partial Shutdown and ERC Eligibility

Q: If most of our business (more than 50%) was shut down by the government, but some parts of business allowed to operate, are we still eligible for the ERC?

A: Yes. A business only needs to have experienced a partial shutdown due to government orders to qualify for an ERC. The IRS states that an aspect or function of the business that accounted for more than 10% of the company’s revenues, or more than 10% of the staff, would qualify.

ERC Eligibility Across Multiple Locations

Q: If only one location has a decline in gross receipts of 20%, can we claim the ERC for all locations in 2021?

A: Yes. The locations would need to be aggregated and counted as one, so employers would have to factor receipts across all of the locations.

Reduction in Gross Receipts

Q: Are we eligible to claim an ERC if we fit either the 10% rule of suspension or if we can demonstrate the required percentage of the reduction of gross receipts? Or do we need to demonstrate both?

A: Yes. Employers may be eligible to claim an ERC if they either fit the 10% rule of suspension or if they can demonstrate the required percentage reduction of gross receipts in a given quarter. They do not need to fit both criteria simultaneously.

Employee Retention Credit Owner Wages

Q: Can a business owner’s wages be claimed for the ERC? What if the owner’s spouse and children or other family members work in the business? Can their wages be claimed as well?

A: Yes. A business owner’s wages may be claimed for an ERC if they do not own 50% or more of the business and they were not paid for with PPP funds. If a married couple each have a stake, their combined ownership must not exceed 50%. If the owner (or owner and the spouse combined) does not own 50% or more of the business, the wages paid to their children, or other family members who work for the business can be claimed for the ERTC. Employers would not be able to claim credit on family if the ownership percentage is greater than 50%.

PPP Funds and ERC Qualifying Gross Receipts

Q: Do PPP funds count towards gross receipts when calculating gross receipts decline?

A: No, they do not.

PEO Use and ERC Eligibility

Q: Can we claim an ERTC if they we use a professional employer organization (PEO)?

A: Yes. Because of the way 941 filing works with a PEO, a Schedule R must be utilized to claim the credit.

Single Employee ERC Qualification

Q: If we only have one employee, can we claim the ERTC?

A: Yes. Self-employment earnings generally don’t qualify, but if employers have a W-2 employee, those wages would likely be permissible.

Draws and ERC Eligibility

Q: If owner wages are taken as draws (rather than taxed wages) can they still be claimed for the ERTC?

A: No. Draws and self-employment income are not considered qualified wages for ERTC.

Want more information about claiming your ERC? Read our playbook.