Who Is Not Eligible For ERC?

 The Employee Retention Credit (ERC) is a refundable tax credit introduced as a part of the CARES Act in 2020 to help businesses affected by the COVID-19 pandemic. Later, the Consolidated Appropriations Act of 2021 and the American Rescue Plan Act of 2021 expanded the credit to cover more businesses. In order to qualify for the ERC, businesses must meet the ERC eligibility 2021 criteria. Let’s discuss who is not eligible for the ERC.

ERC Uneligibility

Government entities

Government entities are not eligible for the ERC guidance. This includes federal, state, and local governments and any agency or instrumentality thereof. This exclusion also applies to any organization exempt from taxation under Section 115 of the Internal Revenue Code.

Businesses that received a Paycheck Protection Program (PPP) loan

With some exceptions, businesses that received a PPP loan are generally not eligible for the ERC. Under the original CARES Act, businesses could not receive both a PPP loan and the ERC. However, the Consolidated Appropriations Act 2021 retroactively allowed businesses that received a PPP loan to claim the ERC. But it was not for the same wages that justified the forgiveness of PPP loans. This means businesses can use the ERC guidance for wages paid outside the covered period of their PPP loan or for wages paid to employees not included in the PPP loan forgiveness calculation.

Businesses that did not experience a significant decline in gross receipts

Businesses can claim the ERC if their gross receipts have declined significantly or they have been suspended by government orders related to COVID-19. The term significant decline in gross receipts generally refers to a decline of 20% or more in gross receipts from the same quarter in 2019 to the same quarter in 2020. Gross receipts must decline by 10% to qualify as a significant decline in 2021. If a business did not experience a significant decline in gross receipts or was not fully or partially suspended, it is not eligible for the ERC.

Businesses that do not engage in a trade or business

A business engaged in a trade or business that implies hobby businesses or businesses not actively operating is not eligible for the ERC.

Businesses that are owned or controlled by a government official

Businesses owned or controlled by a government official are not eligible for the ERC. This includes any business in which a government official owns or controls more than 50% of the ownership interest.

Businesses that are not maintaining employee headcount or compensation levels

A business must maintain employee headcount and compensation levels to claim the ERC. If a business reduces its employee headcount or compensation levels, the amount of the ERC will be reduced proportionately. If a business reduces its employee headcount or compensation levels below a certain threshold, it will not be eligible for the ERC.


In conclusion, the ERC focuses on relieving businesses affected by the COVID-19 pandemic. While credit is available to many businesses, some eligibility criteria must exist. At last, it is important to consult with a tax professional to determine ERC eligibility 2021 for these programs and to ensure compliance with all applicable rules and regulations.
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