Phrases that include the word “tax” don’t typically stir up overly enthusiastic responses, but they also don’t always have to carry a negative connotation either. In 2020 and 2021, almost every business was impacted by the Covid-19 pandemic. The Employee Retention Tax Credit was created through the Coronavirus Aid, Relief, and Economic Act (the CARES Act) to help counter these negative impacts and support businesses in their employee retention efforts during such a tumultuous time.
With so many business owners struggling with how to retain their employees, we saw many companies exploring the expansion of their employee perks or launching employee incentive programs. Think of the ERTC as the government’s way of supplementing these employee retention tools and helping businesses recover from the pandemic’s immense impact.
The Employee Retention Tax Credit is essentially a refundable payroll tax credit that businesses could claim on qualified employee wages, including qualified health plan expenses, paid to their employees.
If you still haven’t checked out if your business qualifies for this tax credit, don’t fret! You have three years after the program end date to retroactively file using form 941-X. But what exactly are the qualification parameters for the Employee Retention Tax Credit?
And what are some examples of businesses that typically qualify for the ERTC? In this article, we’ll answer those questions and provide Employee Retention Tax Credit business examples.
Let’s dive right in to see if your business potentially qualifies!
Have You Heard Of The Employee Retention Credit?
Why should you apply for the employee retention tax credit in 2022?
If you haven’t looked into whether or not your business qualifies for the Employee Retention Tax Credit, it’s not too late!
Before applying, you’ll want to ensure your company does indeed meet the necessary qualifications for this refundable tax credit. In this article, we’ll explore some common industry examples that qualify to give you a better sense of the qualification parameters. In addition to these examples, you can easily see if you qualify with ERC Assistant.
For 2020, you could receive a tax credit amount of up to 50% of qualified wages paid to employees in a calendar quarter with a maximum credit of $5,000 per employee.
For 2021, you could receive a tax credit of 70% of qualified wages with a maximum credit of $7,000 per employee per quarter. Your business may qualify for some quarters and not others depending on if qualifications are met within those quarterly windows.
Tip: Take this 60 second quiz to see if you qualify for the ERTC today!
The Consolidated Appropriations Act passed in December 2020 further expanded ERC qualifications by allowing businesses that received a PPP loan under the Paycheck Protection Program to potentially qualify.
There are two main buckets of eligibility requirements for the ERTC:
➤ A government entity enforced a partial suspension or full shutdown of your business during the 2020 or 2021 tax year which negatively impacted your business in some capacity.
➤ Your 2020 and/or 2021 gross receipts for a specific quarter had a significant decline when compared to that same quarter’s revenue figures in 2019. There are different revenue reduction thresholds for 2020 and 2021 so be sure to review the latest IRS policies when determining if your revenue drop is significant enough to qualify for ERTC.
Now that we know the benefits of the Employee Retention Tax Credit and the high-level qualification parameters, let’s look at some ERTC examples.
Employee Retention Credit Examples
1) Companies with 5 – 100 employees
A few common examples of small employer companies with 5-100 employees include law offices, dentist & optometrist offices, and smaller nonprofit firms. The ERTC was created to help small and mid-size businesses recover from the massive financial and staffing effects of Covid-19, so it’s no surprise that many of these small businesses qualify for the Employee Retention Tax Credit service. If your company of this size is still struggling with employee retention, check out our HR for small businesses guide for some helpful tips!
Why companies in this employee size commonly qualify for ERC:
- Government-mandated shutdowns.
- Significant revenue reduction compared to 2019.
- Reduced operational hours and ability to service customers.
Examples of companies with 5 – 100 employees:
- Business Services → 6 employees = $42,827.62
- Healthcare → 26 employees = $182,171.92
- Non-Profit → 43 employees = $301,729.46
2) Companies with 100 – 500
A few common examples of companies with 100-500 employees include gyms & fitness centers, transportation service companies, and restaurants – to name a few. These types of businesses were obviously and significantly impacted by the Covid-19 pandemic and qualify for the ERTC for quite a few reasons. At the onset of the pandemic in 2020, we saw the closure of many businesses, particularly businesses that had high traffic and elevated levels of person-to-person interaction.
Why companies in this employee size commonly qualify for ERC:
- Government-mandated shutdowns & reduction in operational hours.
- Significant revenue reduction compared to 2019.
- Limited capacity or service offerings due to social distancing policies.
Examples of companies with 100 – 500 employees:
- Gym → 117 employees = $819,042.68
- Transportation → 266 employees = $1,862,419.57
- Foodservice → 414 employees = $2,898,461.37
3) Companies with 500+
A few common examples of companies with 500+ employees include distribution companies, hotels, and tech companies. While the Employee Retention Tax Credit was created to support small and midsize businesses, larger companies can still apply for the ERTC but it is a longer process and payroll costs cannot be included. The per-employee tax credit is also smaller than the amount available to small businesses.
Why companies in this employee size commonly qualify for ERC:
- Significant revenue reduction compared to 2019.
- Suppliers are unable to deliver critical goods, services, or materials.
- Tasks or work that could not be done remotely or experienced a challenging remote transitional period.
Examples of companies with 500+ employees:
- Distribution → 581 employees = $4,067,349.10
- Hospitality → 922 employees = $64,540,16
- Technology → 2,146 employees = $15,022,253.94
These are some ranges of ERC awards being granted by the IRS:
| # of Employees | ERC Award (Low) | ERC Award (High) |
| 5 | $25,000 | $130,000 |
| 10 | $50,000 | $260,000 |
| 15 | $75,000 | $390,000 |
| 20 | $100,000 | $520,000 |
| 25 | $125,000 | $650,000 |
| 30 | $150,000 | $780,000 |
| 40 | $200,000 | $1,040,000 |
| 50 | $250,000 | $1,300,000 |
| 75 | $375,000 | $1,950,000 |
| 100 | $500,000 | $2,600,000 |
| 150 | $750,000 | $3,900,000 |
| 200 | $1,000,000 | $5,200,000 |
| 300 | $1,500,000 | $7,800,000 |
| 400 | $2,000,000 | $10,400,000 |
| 500 | $2,500,000 | $13,000,000 |
*Important Note: This table serves as a broad estimate. This is not a guarantee. Every business is different. Speak to an ERC Expert to fully understand your qualification status and to estimate how much your award might be.
Employee Retention Credit – Notable Industry Examples
1) Foodservice
It’s no surprise that the food service industry is one of the top industries eligible for the Employee Retention Tax Credit. Between government shutdowns in 2020 and business operations restrictions implemented in 2021, the restaurant industry took a major hit in its financials and its ability to retain its full-time employees.
As a result, we saw many food service businesses either shut down or look into how to sell their business to recover their losses. The Employee Retention Tax Credit helps to reward and support businesses that were able to remain open and help keep their employees on the payroll.
Why they qualify for the Employee Retention Tax Credit: The annual gross receipts test is one of the most common reasons for ERTC qualification in the food service industry. Obviously, most of these businesses experienced a significant decrease in gross receipts during 2020 and 2021 when compared to the previous time period in 2019. Another common qualification reason is if the business was subject to either a complete or partial shutdown due to government-issued mandates.
Once closure mandates were lifted, throughout 2021, there were still operational restrictions in place including limited business hours, limited customer capacity due to social distancing, and alcohol sales restrictions, all of which contribute to a business’s ERTC eligibility.
Tip: Take this 60 second quiz to see if you qualify for the ERTC today!
2) Hospitality
Like the food service industry, the hospitality industry & its employees were massively affected by the pandemic and as a result, is another top industry eligible for the Employee Retention Tax Credit. During 2020, there were periods where travel was restricted and into 2021 as these restrictions eased a bit, there still were limitations and a general hesitancy when it came to travel.
Most people avoided non-essential travel and opted to stay home or stay local in lieu of destination getaways. With this dramatic decrease in travel, the hospitality industry struggled immensely to keep their businesses afloat and their employees on the payroll.
Why they qualify for the Employee Retention Tax Credit: The simplest reason that most hospitality businesses qualify for ERTC is that they were either fully or partially suspended from doing business due to government shutdowns. Additionally, once shutdowns were rescinded, there were still social distancing policies enforced which limited customer capacity.
Many hotels & motels also have a restaurant or bar offering onsite and therefore can qualify for the ERTC due to restrictions on hours, limitations on alcohol sales, and vendor supplier issues related to government orders. Hospitality businesses also experienced a decrease in gross revenue compared to 2019 which also qualifies them for the ERTC.
3) Franchises
Many franchises are restaurants so they experienced a similar impact as the general food service industry described above. Another common franchise impacted are gyms and fitness centers.
Whether a restaurant or gym business, many franchise locations were directly impacted by government shutdowns, closures, and restrictions in 2020 and 2021 and challenged with retaining their employees despite these obstacles.
Why they qualify for the Employee Retention Tax Credit: Most franchises experienced partial or full operational shutdown directly as a result of government mandates. Additionally, if that franchise location experienced a significant revenue loss compared to 2019, that would qualify them for the Employee Tax Retention Credit as well.
4) Nonprofits
While nonprofits may not be the first industry that comes to mind when we think about companies that qualify for the ERC, many nonprofit organizations do indeed qualify for the credit.
Why they qualify for the Employee Retention Tax Credit: Like so many other companies, many nonprofit organizations were affected by government shutdown mandates throughout the pandemic and were forced to explore work-from-home policies in order to continue operations.
Once reopened, restrictions around capacity and operational hours continued to limit nonprofit operations & revenue, therefore, qualifying these organizations for the Employee Retention Tax Credit. In some instances, if a nonprofit experienced issues with their vendor suppliers as a result of government policies, that could be another reason for an ERTC qualification.
5) Recreation Facilities
Recreation facilities such as parks or rec centers are another common industry eligible for the Employee Retention Tax Credit. Throughout the pandemic, particularly during shutdown mandates, most of the public stayed at home rather than venturing out to recreation facilities resulting in a drastic decrease in foot traffic at these locations.
Why they qualify for the Employee Retention Tax Credit: Similar to nonprofits, many recreational facilities were impacted by government pandemic policies restricting business hours and their ability to serve the public, qualifying them for the Employee Retention Tax Credit. Many recreational centers were also completely shut down for a time period as a result of the government shutdowns.
Even once restrictions and shutdowns were eased, people were still hesitant to return to these facilities which negatively impacted revenue.
6) Gyms
Unsurprisingly, gyms and fitness facilities are one of the top industries that qualify for the Employee Retention Tax Credit. While we saw a massive increase in at-home gym equipment sales during the pandemic, we saw an equally massive decrease in gym memberships. Gyms struggled to remain open and retain their staff during this tumultuous time period.
Why they qualify for the Employee Retention Tax Credit: The most obvious reason that gyms qualify for the ERTC is that most gyms experienced either a complete or partial government-mandated shutdown during 2020. Once allowed to reopen, gyms were still subject to restrictions such as limited hours of operation and limited capacity due to social distancing guidelines.
Between the government shutdowns, operational restrictions, and reduction in gym-goers, many gyms qualify for the ERTC due to a substantial decrease in gross receipts when compared.
7) Preschools & Daycare Centers
Preschools and daycare centers are another top industry that was strongly impacted by the pandemic and therefore commonly qualify for the ERTC. With school closures during 2020 and many parents working from home, children weren’t attending preschool or daycare centers and as result, the daycare staff was unable to work.
Why they qualify for the Employee Retention Tax Credit: As mentioned, most daycares and preschools experienced complete or partial shutdowns during the beginning of the pandemic in 2020. Once reopened, there were still government policies in place reducing classroom size and an overall hesitation amongst parents to send their children back into a public setting, like daycares, due to Covid-19 health concerns.
Naturally, this had a negative impact on their revenue figures for 2020 and 2021, which qualify these facilities for the ERTC.
Lastly, many daycares and preschools struggled to hire and retain staff which directly impacted the number of children they can support and the overall business revenue.
8) Transportation Companies
Transportation companies are yet another top qualifying industry for ERTCs since they were significantly impacted throughout the Covid-19 pandemic.
During 2020 and much of 2021, there was a dramatic decrease in the need for transportation companies as many people were staying home, businesses were closed, and popular public events were canceled.
Why they qualify for the Employee Retention Tax Credit: As with many of the industries mentioned above, transportation companies also were either partially or fully shut down as a result of the pandemic and government mandates, particularly at the start of the pandemic in 2020.
After shutdowns were rescinded, there still was a negative impact on revenue because of the reduction in client capacity due to social distancing guidelines. Between these shutdowns and restrictions, and the mass cancellations of events where their transportation services were no longer needed, most transportation companies experienced a significant loss in revenue in 2020 and 2021 when compared to 2019, which qualifies them for the ERTC.
Conclusion
Now that you have a better idea of what the Employee Retention Tax Credit is, what it takes to qualify, and some examples of businesses that meet those qualifications, we recommend digging deeper to see if the ERTC is something your company can potentially benefit from! While it can be quite challenging to navigate government tax programs & initiatives, don’t let that intimidate or overwhelm you.
