Startup Businesses that began business activities after February 15, 2020 may be eligible to receive Employee Retention Credits of up to $50,000 per calendar quarter. The credit is part of the American Rescue Plan Act (ARPA), signed by President Biden on March 11, 2021. It can be used to offset payroll expenses for qualifying business and is available for wages paid after June 30, 2021 and before Jan. 1, 2022.

Businesses that qualify under the recovery startup business test do not have to meet the either of the following requirements; 1) been subject to a government order suspending the employer’s trade or business. Or 2) A substantial decline in an employer’s gross receipts as stated in the law. Instead to qualify they must pass the recovery startup business test this test requires, that they began carrying on a trade or business after Feb. 15, 2020, and have average annual gross receipts under $1,000,000 for the 3-tax-year period ending with the tax year which precedes the calendar quarter for which the employee retention tax credit or ERTC is determined. (note Since new businesses don’t general have gross receipts any business that started after Feb. 15, 2020 should meet the requirements.

This allows many new businesses that would not otherwise qualify for the employee retention credit to qualify. The credit which can not exceed $50,000 per quarter is equal to 70% of the first $10,000 of payroll per employee per quarter. Hence an employer with 7 employees who each earned $8,000 during the quarter would receive a refundable credit of $39,200.

 

For more information on the Employee Retention Credit and recovery startup businesses click here.