Recovery Startup Business ERC: ERC Update Expands Eligibility to New Startups

June 2, 2021

At a glance:

  • ERC update: The American Rescue Plan introduced a new group of Eligible Employers, categorized as recovery startup businesses.
  • Expanded eligibility: The expanded criteria helps close the gap for recent startups that were previously ineligible, providing a new means of benefiting from the credit.
  • Next steps: Any companies that started operations in 2020 should reassess their ERC eligibility; you might qualify for up to $100,000 in credits

Don’t miss out on this new opportunity to claim the ERC. Contact Aprio’s ERC team to see if you qualify under the new eligibility criteria.

The full story:

If you started a company in 2020 and thought you were ineligible for the Employee Retention Credit (“ERC”), we have good news. The American Rescue Plan Act (“ARPA”), signed into law on March 11, 2021, expanded the definition of an eligible employer to include recently formed startup companies. Your startup might be eligible for a credit of up to $100,000 across the third and fourth quarters of 2021 if you meet the eligibility criteria outlined below:

Help is on the way for startup companies

Since the revisions to the ERC for recovery startup businesses in December 2020, the ERC has been one of the most valuable lifelines available to companies struggling from the effects of COVID-19. However, certain eligibility guidelines made it difficult for some companies to qualify. In fact, most startup companies who opened their doors in 2020 were previously ineligible, blocking access to the credit for some of the companies who needed that relief the most.

To close that gap, the ARPA introduced a new way to qualify for the credit. For 2021, Eligible Employers now include any business that meets one of the following three criteria:

1. Experienced a full or partial suspension in operations because of a government order that limited travel, commerce, or group meetings due to COVID-19;

2. Experienced at least a 20% decline in gross receipts for the calendar quarter compared to the same quarter in 2019; or

3. Qualifies as a recovery startup business.

Recovery startup businesses are an entirely new category of Eligible Employers introduced by the ARPA and include any company that:

  • began operations after February 15, 2020, and
  • has average annual gross receipts of $1,000,000 or less.

Qualifying as a recovery startup business

Startups that meet the above requirements can benefit from the recovery startup business ERC beginning in the third and fourth quarters of 2021 and are eligible for a credit of up to $100,000 ($50,000 per quarter). In order to qualify for recovery startup business ERC, startup businesses only need to satisfy the criteria for opening date and average annual gross receipts; they do not need to meet the requirements for operational suspension or a decline in gross receipts.

This significant expansion in eligibility is huge news for newly formed companies as it extends this valuable credit to some of the companies who need it most yet were previously excluded. If you started a company in 2020, it’s time to reassess your status as an Eligible Employer for the ERC.

If you were previously unable to benefit from the ERC due to being a startup in 2020, it’s time to reevaluate your eligibility – you might qualify for up to $100,000 in credits for the third and fourth quarters of 2021.

Eligibility requirements for the ERC are changing rapidly, but Aprio’s dedicated ERC team is constantly monitoring the latest IRS guidance. Learn more about ERC for recovery startup businesses. Contact us today to Make sure you’re maximizing all credits and relief available to you.

Disclaimer for services provided relative to SBA programs and the CARES Act

Aprio’s goal is to provide the most up to date information, along with our insights and current understanding of these programs and regulations to help you navigate your business response to COVID-19.

The rules regarding SBA programs are constantly being refined and clarified by the SBA and other agencies In certain instances, the guidance being provided by the agencies and/or the financial institutions is in direct conflict with other competing guidance, regulations and/or existing laws.

Due to the evolving nature of the situation and the lack of final published rules, Aprio cannot guarantee that additional changes or updates won’t be needed or forthcoming and the original advice given by Aprio may be affected by the evolving nature of the situation.

You need to evaluate and draw your own conclusions and determine your Company’s best approach relative to participation within these programs based on your Company’s specific circumstances, cash flow forecast and business strategy.

In situations where resources are provided by third parties, those services should be covered under a separate agreement directly with that service provider. Aprio is not responsible for the actions of any other third party.

Aprio encourages you to contact your legal counsel to address the legal implications of the impact of the CARES Act and specifically your participation in any of the SBA programs.

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About the Author

Justin Elanjian

Justin Elanjian, CPA, is the Partner-in-Charge of Aprio’s Paycheck Protection Program (PPP) & Employee Retention Credit (ERC) Services. As a national PPP expert, prominent speaker and strategic business advisor, Justin helps both lenders and borrowers navigate the complexities of the PPP. He also helps his clients realize benefits from other stimulus package programs, such as the ERC, and is committed to strengthening his clients’ balance sheets and helping them achieve what’s next. Justin also leads a team of more than 50 professionals who share his passion for helping businesses maximize the federal COVID relief programs.