What is a Recovery Startup Business? All About the ERC Definition

May 4, 2023

Although the Employee Retention Credit (ERC), a fully refundable payroll tax credit many business owners are likely aware of, applies to quarterly employment taxes businesses were required to pay for 2020 and 2021, there is still time to apply for the credit if an employer does so retroactively. There are specific guidelines to follow to see if you and your business qualify for the ERC, and some involve a certain type of business called a recovery startup business. 

What is the ERC and Who is Eligible?

The Employee Retention Credit is a government program created to help business owners endure financial hardships at the height of the COVID-19 pandemic. It incentivized qualified businesses to keep employees on payroll, and businesses that qualified for the credit could receive up to $26,000 per employee.

Generally, employers are eligible to claim the ERC for 2020 if they operated a business that experienced either a full or partial suspension of the operation of their business during any quarter that year due to a governmental order limiting certain operations, or if the business experienced a significant decline in gross receipts by more than 50 percent as compared to the same quarter from the previous year.

2021 eligibility differs slightly in that employers can retroactively claim the ERC if they operated a business that year and experienced similar operations suspensions or if their business experienced a decline in gross receipts in the first, second, or third calendar quarter in 2021 and the gross receipts of that calendar quarter are less than 80 percent of the gross receipts in the same 2019 calendar quarter.

There are more specific guidelines and information businesses need to compile to apply for the ERC and a skilled professional like the ERC team at Phillips Law Group may be able to help you navigate the process. 

What is a Recovery Startup Business?

“Most taxpayers became ineligible to claim the ERC for wages paid after September 30, 2021,” according to the IRS. But recovery startup businesses are an exception to this rule.

The definition of a recovery startup business provided by the Legal Information Institute of Cornell Law School – and linked to by the IRS – notes that your business may qualify as a recovery startup business if it started after mid-February 2020 and if its gross receipts don’t exceed $1 million. If you have one or more employees, not including owner-operators or family members, your business might fall under this definition. 

Recovery startup businesses can still claim the ERC for wages paid after June 30, 2021, and before January 1, 2022.

Your eligibility for the Employee Retention Credit depends on the unique circumstances of you and your business. You might be eligible to retroactively claim the ERC whether or not your business is considered a recovery startup business. 

The ERC Team at Phillips Law Group

Phillips Law Group and its partners have comprehensive experience and expertise in helping businesses with tax credit needs and with the ERC specifically. The firm and our partners have already been involved in applying for ERC tax credit refunds for many companies, and we want to help you, too. 

To find out if you and your business are eligible to apply for the ERC, particularly if you’re looking to apply specifically as a recovery startup business, please give our team a call or fill out the form on this page. 

Contact us today to see how Phillips Law Group and our partners can help you with the ERC and other tax credit assistance today!