ERTC Eligibility Update – Recovery Startup Businesses

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The American Rescue Plan Act of 2021 has created a new category of eligibility for the Employee Retention Tax Credit (ERTC). A ‘Recovery Startup Business’ can now claim the ERTC in Quarter 3 and Quarter 4 of 2021.

A ‘Recovery Startup Business’ does not need a partial suspension of business due to COVID restrictions to qualify. Additionally, they would not qualify for the gross receipts reduction test. The gross receipts reduction test measures current gross receipts against 2019 gross receipts.

What is a ‘Recovery Startup Business’?

A ‘Recovery Startup Business’ is a business that:

  • Began carrying on a trade or business after February 15, 2020. Therefore, cannot meet the qualifications of the gross receipts test; and
  • Has average annualize gross receipts of $1 million or less for the duration of the business’ existence

Are there limitations to what a ‘Recovery Startup Business’ can claim?

  • A ‘Recovery Startup Business’ is limited to a $50,000 Employee Retention Tax Credit per quarter. Therefore, the maximum credit is $100,000 for the last two quarters of 2021.
  • The tax credit is equal to 70% of qualified wages paid to employees in each quarter. Thus, the maximum amount of wages eligible for each quarter is $71,428.57.
  • Qualified wages, tips, and qualified health plan expenses are limited to a maximum of $10,000 for each employee, for each quarter.
  • Wages used for purposes of PPP forgiveness, the Shuttered Venue Operator Grant (SVOG), or the Restaurant Revitalization Fund (RRF) are not eligible for the ERTC.

For RASI Clients:

If your business is a ‘Recovery Startup Business’ qualified for the ERTC in Quarter 3 and Quarter 4, the ERTC eligible wages need to be calculated and communicated to RASI’s Tax Team via support request. In that support request please state that your business qualifies for the ERTC because it is a ‘Recovery Startup Business’.

RASI’s 2021 ERTC Report can be used to calculate eligible wages for purposes of the ERTC if you wish to calculate yourself. Utilize the links below for a training webinar and corresponding update about the report:

If you are interested in RASI’s Compliance Department calculating the ERTC eligible wages please send a support request regarding Compliance to get the process started.

Eligible wages must be received by October 12 to be included on the original 941. Consequently, if received after that date the credit will be claimed on an amended return.

Please send an email to Compliance@rsiaccounting.com or a support request regarding Compliance if you have any questions.

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