In August, the IRS published Notice 2021-49 with updates to the American Rescue Plan Act of 2021. These updates included the addition of the Recovery Startup Business as a third category for employers to qualify for the Employee Retention Tax Credit (ERTC) in Q3 and Q4 of 2021.
For your business to qualify for the ERTC in Q3 and Q4 as a Recovery Startup Business, the following must apply:
1. Began carrying on any trade or business after February 15, 2020,
2. Average annual gross receipts do not exceed $1,000,000, and
3. Not otherwise eligible for the credit due to a full or partial suspension of operations or a decline in gross receipts.
Similar to qualifying for the ERTC due to suspension of operations or decline in gross receipts, this credit is available based on 70% of the first $10,000 in wages per employee in a quarter for a maximum $7,000 credit per employee each quarter. However, the total credit for Recovery Startup Businesses is capped at $50,000 per quarter. Determining if the business qualifies as a Recovery Startup is assessed separately for Q3 and Q4. If the business meets the above qualifications for Q3 and receives the credit as a Recovery Startup, but then qualifies for the credit based on either a full or partial suspension or a decline in gross receipts for Q4, they will not be subject to the $50,000 maximum credit cap in Q4 as they will no longer be a Recovery Startup Business.
Wages for greater than 50% owners and wages paid to relatives of majority owners are not eligible for this credit. For owners with more than one business, aggregation rules apply in determining if an employer is a Recovery Startup Business as well as in respect to the $50,000 credit limit.
Please let us know if you would like any assistance in determining if your business qualifies for this credit and/or claiming the credit on your Q3 and Q4 Forms 941.