Who Qualifies for the ERTC? A Complete 2025 Guide for Small Businesses
The Employee Retention Tax Credit (ERTC) remains one of the most valuable incentives for small businesses in 2025. Designed to help employers who kept staff on payroll during difficult times, the ERTC can mean significant savings. However, rules around ERTC qualification 2025 are not always straightforward, and many businesses are unsure if they meet the criteria.
This guide will explain who qualifies for ERTC, what has changed in recent years, and how small businesses can take advantage of this powerful tax credit.
Understanding the ERTC Basics
What is the Employee Retention Credit (ERC/ERTC)?
The ERTC is a refundable payroll tax credit created under the CARES Act in 2020. Its goal is to encourage businesses to retain employees during economic disruptions. Unlike loans such as the Paycheck Protection Program (PPP), the ERTC is not repaid—it directly reduces your tax liability.
Difference from Other Relief Programs
PPP Loans – Must be applied for and forgiven.
ERTC – Automatic payroll tax credit, no repayment.
Other Credits – Focused on specific expenses; ERTC is broader.
History and Evolution of the ERTC
2020: Launched under the CARES Act.
2021–2023: Expanded and updated with new rules, including interaction with PPP loans.
2025: Businesses can still file retroactive claims for 2020–2023, and small employers should review eligibility carefully.
Core ERTC Qualification Criteria
General Eligibility Rules
In 2025, businesses can qualify if they meet either a revenue decline test or experienced a full/partial suspension of operations. Eligible entities include:
Small and mid-sized businesses
Certain large employers (with restrictions)
Nonprofits and tax-exempt organizations
Revenue Decline Requirements
For 2020: A 50% drop in gross receipts compared to 2019.
For 2021–2023: A 20% drop compared to the same quarter in 2019.
2025: Only retroactive claims remain, but these revenue thresholds still apply.
Full or Partial Suspension of Operations
A government-mandated suspension qualifies if it directly affected your ability to operate. Examples:
Restaurants limited to takeout only
Healthcare providers restricted from elective procedures
Retailers forced to close physical stores
Size of Business and Number of Employees
Small employers (≤100 employees in 2020, ≤500 in 2021–2023): All wages qualify.
Large employers: Only wages paid to employees not working qualify.
Industry-Specific Eligibility Insights
Restaurants and Hospitality
Indoor dining restrictions
Event cancellations
Proof: Local/state shutdown orders
Healthcare Providers
Clinics and dental offices suspended from elective care
Increased costs due to PPE requirements
Retail and E-commerce
Brick-and-mortar closures
Supply chain disruptions impacting sales
Nonprofits
Charities and religious organizations also qualify if they meet the decline or suspension test.
Employee and Wage Considerations
Who Counts as a Qualified Employee?
Full-time and part-time staff
Excludes owners and family members of majority shareholders
What Wages Can Be Claimed?
Cash wages
Employer-paid health insurance premiums
Full-time vs. Part-time Workers
Both are included, but credit calculations may vary depending on hours worked.
Claiming the ERTC in 2025
How to Calculate the Credit
2020: Up to $5,000 per employee for the year
2021–2023: Up to $7,000 per employee per quarter
Example: A business with 10 employees could claim up to $70,000 for one quarter in 2021.
Filing Process
Use IRS Form 941-X for retroactive claims
Submit amended returns for eligible quarters
Deadlines and Retroactive Claims
Employers have up to 3 years from the original filing date to claim retroactive credits.
For many, the deadline will fall between 2024 and 2026.
Common Misconceptions and Challenges
Myths Debunked
Myth: Only businesses with massive losses qualify.
Truth: Even small declines or operational suspensions may count.
Myth: If I took PPP, I can’t claim ERTC.
Truth: You can claim both—just not on the same wages.
IRS Audits and Compliance Risks
Keep payroll records, government orders, and financial statements.
Poor documentation is the top reason for audits.
Professional Help and Resources
Do You Need an ERTC Specialist or CPA?
DIY Filing: Possible if you have strong bookkeeping.
CPA/ERTC Specialist: Recommended for maximizing claims and avoiding mistakes.
Trusted Resources
IRS ERTC Guidance
Small Business Administration
Conclusion
The Employee Retention Tax Credit remains a powerful opportunity for small businesses in 2025. By understanding ERTC qualification 2025 rules—whether through revenue decline, suspension of operations, or employee considerations—you can potentially save thousands.
If you’re unsure about who qualifies for ERTC in your situation, consult a tax professional or review IRS guidance before filing. Don’t miss your chance to claim credits that could make a real difference for your business.
Frequently Asked Questions (FAQs)
Who qualifies for ERTC in 2025?
Any business that met the revenue decline or suspension tests for 2020–2023.
What is the revenue decline requirement for ERTC?
50% for 2020, 20% for 2021–2023.
Can self-employed individuals claim ERTC?
No, self-employed income is excluded.
Do nonprofits qualify?
Yes, nonprofits can qualify under the same rules.
Can businesses that took PPP still qualify?
Yes, but not for the same wages.
What is the deadline for retroactive claims?
Most claims must be filed by 2025–2026, depending on the quarter.
What documentation is required?
Payroll records, revenue statements, and government orders.