The American Rescue Plan Act of 2021 added the Recovery Startup Provision to the employee retention tax credit (“ERTC”) to allow recovery startup businesses to qualify for the ERTC.

A recovery startup business for purposes of the Recovery Startup Provision is defined as a business who:

  • Began operations after February 15, 2020 and
  • Average annual gross receipts do not exceed $1 million

If a business meets the definition of a recovery startup, the business is not required to meet the gross receipts test nor have been subject to a government ordered shutdown as other businesses would be in order to meet the qualifications for the ERTC.

Employers that meet the criteria of a “recovery startup business” are eligible for a credit equal to 70% of the wages paid to each employee per quarter up to a maximum of $10,000 per quarter per employee. Pursuant to the Recovery Startup, the total credit for an employer cannot exceed $50,000 per quarter. A business owner can take this credit in 3rd quarter 2021 and 4th quarter 2021.

The ERTC is a refundable payroll tax credit that was first introduced by the CARES Act in March 2020. The payroll tax credit is claimed on the quarterly payroll tax return (Form 941). Should the amount of credit exceeds the employment tax deposits, the employer can apply for an advance payment of the credit on IRS Form 7200 as long as Form 7200 is filed by the filing due date of Form 941 for the specific quarter.