If your business was negatively impacted during COVID-19, it might be eligible to retroactively claim these tax credits. The ERTC offers retroactive credits to COVID-19-affected businesses, while the FFCRA provides compensation for pandemic-related time off. Learn more about how to determine your eligibility and file with this guide.   

Navigating the eligibility requirements and filing processes for these tax credits can be complex, but in this guide, we'll break down the key details of the ERTC and FFCRA, helping you determine whether your child care business qualifies for these valuable programs. With the right information and support, you can take advantage of these retroactive tax credits and give your business the financial boost it needs to recover and grow. 

Note: ERTC and FFCRA ran from March 13, 2020 (ERTC) and March 15, 2020 (FFCRA) through September 30, 2021. The credits are received by filing with the IRS. The deadline to file for 2020 ERTC and FFCRA credits is April 15, 2024. As of this publication, the deadline to file for 2021 ERTC and FFCRA credits is April 15, 2025. You may be viewing this document after the 2020 filing deadline has passed; if this is the case you will only file for ERTC and FFCRA credits based on your 2021 eligibility. 

What is the Employee Retention Tax Credit? 

The Employee Retention Tax Credit (ERTC) is a refundable tax credit for businesses that kept W-2 employees employed throughout the pandemic. A refundable tax credit is one that can come back to you as cash, and in many ways, the ERTC is like the Paycheck Protection Program, but with less paperwork. 

Most small businesses, including nonprofits, are eligible for the program. Government agencies and public-school districts are not eligible. 

The ERTC covers the period from March 13, 2020, to September 30, 2021. While the ERTC program ended on September 30, 2021, you can apply for the credit for 2020 and 2021 retroactively through a simple update to your quarterly Form 941 that is submitted for all employees to the IRS.   

The ERTC has slightly different rules for 2020 and 2021. It is important to note that in August 2021, a new criteria and process was set up for certain businesses that qualify as “recovery startups.” These businesses are able to apply for the credit in both Quarters 3 and 4 of 2021. 

Businesses have until April 15, 2024, to amend their 2020 taxes, and until April 15, 2025, to amend their 2021 taxes, and apply for this credit. 

How Do I Qualify? 

Do you have W-2 employees, and did you experience any of the following between March 13, 2020, and September 31, 2021? 

• A closure due to local or state government order; or 

• A decrease in the number of children you can serve related to a government order; or 

• A decrease in revenue from 2019 to 2020 or from 2019 to 2021? 

If any of the above applies, you may be eligible for the Employee Retention Tax Credit.  

ERTC 2020 

Is my business eligible for the ERTC 2020? 

To be eligible for the Employee Retention Tax Credit in 2020 you must have either: 

Been subject to a qualifying government order related to COVID-19 that caused a full or partial suspension of your trade or business operations. The government order may be at the local, state, or federal level. 

Examples of governmental orders: 

• An order from the city's mayor stating that all non-essential businesses must close for a specified time period. 

• A state's emergency proclamation that residents must shelter in place for a specified period, except for essential workers. 

• An order from a local official imposing a curfew on residents that impacted the operating hours of your trade or business for a specified time period. 

• An order from a local health department mandating a workplace closure for cleaning and disinfecting. 

-  OR -  

Experienced a “significant decline in gross receipts”, defined as a decline in gross receipts of at least 50% in any calendar quarter in 2020 when compared to the same calendar quarter in 2019. If you qualify based on a decline in gross receipts, you can use this qualification until one quarter of your gross receipts is greater than 80% of the same quarter in 2019. 

Example of a Significant Decline in Gross Receipts - Let’s say in Quarter 2 your gross receipts were 35% of 2019 levels. Then, in Quarter 3 you jumped up to 95% of gross receipts from 2019. You still qualify in Quarter 3 because of the reduced Quarter 2 levels. In Quarter 4, you will no longer qualify if your gross receipts are still more than 50% of 2019 levels. 

How Does the ERTC 2020 Work? 

The Employee Retention Tax Credit is equal to 50% of up to $10,000 in qualified wages (including amounts paid toward health insurance) per employee for all calendar quarters beginning March 13, 2020, and ending December 31, 2020. If you are claiming the credit specifically for a business closure, you can only use payroll during that period. The maximum credit per employee between March 13, 2020, and December 31, 2020, is $5,000. 

Here’s an example. You pay Mary $8,000 in wages and healthcare in quarter 2, $6,000 in quarter 3, and $6,000 in quarter 4 of 2020. Your credit amount for Mary is $4,000 in Q2, $1,000 in Q3, and $0 in Q4. Once you hit the $5,000 cap, any additional wages you pay Mary in 2020 will not increase your credit amount. 

If you had less than 100 employees on average in 2019, you can claim credit for every qualified employee whether they are working or not (but of course, they need to be on your payroll and not unemployment). If you had more than 100 employees on average in 2019, you can only use payroll for those employees who are actively working. 

ERTC 2021 

Is My Business Eligible for the ERTC 2021? 

To be eligible for the Employee Retention Tax Credit in 2021 you must have either: 

Been subject to a qualifying government order related to COVID-19 that caused a full or partial suspension of your trade or business operations. The government order may be at the local, state, or federal level. 

Examples of governmental orders: 

• An order from the city's mayor stating that all non-essential businesses must close for a specified time period. 

• A state's emergency proclamation that residents must shelter in place for a specified period, except for essential workers. 

• An order from a local official imposing a curfew on residents that impacted the operating hours of your trade or business for a specified time period. 

• An order from a local health department mandating a workplace closure for cleaning and disinfecting. 

-  OR -  

Experienced a “significant decline in gross receipts”, defined as a decline in gross receipts of at least 20% in any calendar quarter in 2021, through September 30, 2021, when compared to the same calendar quarter in 2019. If you qualify based on a decline of gross receipts, you can use this qualification until one quarter of your gross receipts is greater than 80% of the same quarter in 2019. 

Example of a Significant Decline in Gross Receipts - Let’s say in Quarter 2 your gross receipts were 35% of 2019 levels. Then, in Quarter 3 you jumped up to 95% of gross receipts from 2019. You still qualify in Quarter 3 because of the reduced Quarter 2 levels. In Quarter 4, you will no longer qualify if your gross receipts are still more than 80% of 2019 levels. 

How Does the ERTC 2021 Work? 

The Employee Retention Tax Credit is equal to 70% of up to $10,000 in qualified wages (including amounts paid toward health insurance) per employee per quarter. If you are claiming the credit specifically for a business closure, you can only use payroll during that period. The maximum credit per employee per quarter is $7,000. 

Here’s an example. You pay Kevin $8,000 in the first quarter, $10,000 in the second quarter, $12,000 in the third quarter, and $12,000 in the fourth quarter of 2021. The credit amount available to you is $5,600 for Q1, $7,000 for Q2, $7,000 for Q3, and $0 for Q4. Remember that the tax credit amount is capped at $7,000 per quarter, and the 4th quarter wages do not qualify for the credit. 

SOME OTHER IMPORTANT NOTES: 

You cannot claim credits for the wages of ownership. So, if you are a sole proprietor or the owner of an LLC, S Corp, or C Corp, you can use the wages from W-2 employees, but not yourself, even if you were paid via W-2. You also cannot claim the wages of any immediate family member you employ at your business. 

If you have wages covered by the Families First Coronavirus Response Act, Paid Family and Medical Leave, or through a Work Opportunity Tax Credit, they will not count for the program. 

PRO TIP: If you have a PPP, you cannot “double count” the money. Make sure that the wages you are counting for the ERTC are not the same as the PPP. For example, if you had a PPP loan for all your wages in, May 2020, you cannot also claim an ERTC for those wages. This is true even if you received forgiveness for the loan. 

How Do I Get Reimbursed? 

You get reimbursed through a “refundable tax credit.” That’s a technical way of saying the United States Treasury pays you using money from employment taxes. Think of this term as simply a “reimbursement” for the applicable wages. 

You get your ERTC reimbursement by revising your eligible past FORM 941 submittals using an amendment (FORM 941X and instructions). 

Recovery Startups 

For the purposes of qualifying for the ERTC, businesses that began their operations after February 15, 2020, are known as “recovery startups.” These businesses are eligible to claim the Employee Retention Tax Credit because of the date on which they became operational. To qualify as a “recovery startup,” the company must also have earned less than $1 million in revenue for the three years preceding the quarter in which the tax credit is claimed. Eligible recovery startup businesses may claim the ERTC for Quarters 3 and 4 of 2021. 

Recovery startups can claim 70% of up to $10,000 in wages per employee per quarter, just as other eligible businesses. However, recovery startups are limited to a maximum credit of $50,000 per quarter, or $100,000 total for quarters in 2021. 

  The Families First Coronavirus Response Act 

   Did you have staff who needed time off in 2020 or 2021 for: 

• Coronavirus-19 (COVID) illness. 

• Quarantining because of potential or direct COVID exposure. 

• Taking care of a family member with COVID; or 

• Taking care of your children because their child care provider or school was closed or limited to remote education? 

   If you answered yes, to any of these questions, even if they were in the past, you may be able to qualify for federal funds. 

What is Families First Coronavirus Response Act Leave? 

When the pandemic struck, many small businesses could not afford to provide the additional sick leave that would be needed due to COVID-19 related illness or quarantine. Additionally, many schools closed in reaction to the pandemic, forcing countless parents to stay home with their children and support them with remote schooling. In many cases, these small businesses lacked the reserve funds needed to pay employees whose children were now at home, leaving them unable to return to work but with no income. As such, the Federal Government created the Families First Coronavirus Response Act (FFCRA) Leave which provides funds in the form of payroll tax credits to help alleviate the economic impact of needing to provide this leave. 

Businesses have until April 15, 2024 to amend their 2020 taxes, and until April 15, 2025 to amend their 2021 taxes, and apply for this credit. 

Is my business eligible? 

If you have fewer than 500 employees, you can take advantage of the FFCRA. While this would most likely not be the circumstances for centers, even if you are a sole proprietor or self-employed and it is just you — you can take advantage of the program. 

PRO TIP If you have a PPP, you cannot “double count” the money. Make sure that the salary you are counting for the FFCRA is not the same as the PPP. For example, if you are claiming PPP forgiveness for all your salary in May 2020, you cannot also claim an FFCRA. You also cannot claim wages covered by ERTC. 

PRO TIP If you have 500 or more employees, you’re not eligible to claim the credit for qualified paid sick and family leave wages. 

How does it work? 

  The FFCRA covers leave taken between March 15, 2020, and September 30, 2021. 

  There are two types of leave available. 

Emergency Paid Sick Leave Act (EPSLA) 

First, the Emergency Paid Sick Leave Act (EPSLA) provides up to 80 hours of sick leave for employees: 

• At their regular rate of pay (up to $511 per day with a cap of $5,110 for the whole 80 hours) if the employee is quarantined for potential COVID-19 exposure or has COVID-19 symptoms. 

• At two-thirds their regular rate of pay (up to $200 per day with a cap of $2,000) if the employee is caring for someone under quarantine or a child (under 18) whose school or child care provider is closed or unavailable for reasons related to COVID-19. A school closure includes remote learning situations where the child is at home. 

Emergency Family and Medical Leave Expansion Act (EFMLEA) 

Second, the Emergency Family and Medical Leave Expansion Act (EFMLEA) provides up to 12 weeks of expanded family and medical leave with 10 of those weeks paid at two-thirds of the employee’s regular rate of pay (up to $200 per day with a cap if $2,000) if the employee is unable to work (including telework) to care for a child whose school or childcare provider is. 

closed due to COVID-19. A school closure includes remote learning situations where the child is at home. 

How do I get reimbursed? 

You get reimbursed through a “refundable tax credit.” That’s a technical way of saying the United States Treasury pays you using money from employment taxes. Think of this term as simply a “reimbursement” for the applicable wages. 

Reimbursement is handled differently if the employee taking the leave is a “W-2 employee” or a sole proprietor/self-employed individual. 

For Ownership and Employees paid on W-2 

You can get reimbursement for W-2 employees by revising past FORM 941 submittals using an amendment (FORM 941X and instructions). 

For Sole Proprietors & the Self-Employed 

It is important to know you can claim the credit for 2020 or 2021, even if you already submitted your taxes. You will need to ask your tax preparer to file a FORM 1040X (FORM 1040X and instructions for Form 1040X) and use Form 7202: Credits for Sick Leave and Family Leave for Certain Self-Employed Individuals (FORM 7202 and instructions for Form 7202). To help you with this process, we have created a supplemental worksheet (see below), which provides a way to share the data (and how to use the credit) with your tax preparer. You can also do this though the amendment process of most tax software programs.  

What else should I know? 

Employers may exclude healthcare providers or emergency responders from EPSLA and EFMLEA leave, and businesses with less than 50 employees can qualify for an exemption if the leave would jeopardize the viability of the business.  

DEVELOPED AND DESIGNED BY CIVITAS STRATEGIES 

Disclaimer: The information contained here has been prepared by Civitas Strategies on behalf of the New Mexico Early Childhood Education and Care Department, WESST, and Growing Up New Mexico and is not intended to constitute legal, tax, or financial advice. The Civitas Strategies team has used reasonable efforts in collecting, preparing, and providing this information, but does not guarantee its accuracy, completeness, adequacy, or currency. The publication and distribution of this information is not intended to create, and receipt does not constitute, an attorney-client or any other advisory relationship. Reproduction of this information is expressly prohibited. Only noncommercial use of this work is permitted. 

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