As a business owner, you’re probably familiar with the general idea of the Employee Retention Credit (ERC). But knowing what it is and if you qualify are two different things. We’re going to fill in some blanks and give you the straight scoop on qualifying, but first, let’s quickly review what the Employee Retention Credit is.
The Employee Retention Credit is precisely what the name implies. It’s a credit that the federal government pays you depending on the degree to which your business suffered economically due to COVID-19. If you qualify, the ERC is not a loan; it doesn’t need to be repaid.
Do you qualify for the Employee Retention Credit?
Good news – most employers, following the enactment of the American Rescue Plan Act of 2021, could qualify for the ERC. Qualification is determined by one of two factors:
- Your business was fully or partially suspended or had to reduce business hours due to a government order.
- You experienced a significant decline in gross receipts.
The first factor is easy to gauge – your business either was or wasn’t partially suspended or forced to reduce business hours. However, the second factor merits clarification.
Per the CARES Act of 2020, you would qualify if your business’s gross receipts in a calendar quarter in 2020 were below 50% of the same calendar quarter in 2019. However, if you had a quick bounce-back in the next quarter and your gross receipts exceeded the same quarter in 2019 by 80% or more, you would no longer be eligible.
Things changed a bit due to the Consolidated Appropriations Act of 2021. According to this act, in 2021, your company had to be impacted by a forced closure or quarantine, to the extent that you experienced greater than a 20% drop in gross receipts compared to the same quarter in 2019.
If you were a new business, the IRS allows you to use gross receipts for the quarter in which you started the business as a comparison point for any quarter you don’t have 2019 figures for because your business didn’t yet exist.
The American Rescue Plan Act of 2021 added several more wrinkles.
First, it states that in addition to the eligibility stipulations we just looked at for the Consolidated Appropriations Act, your business also has the option of determining eligibility for the ERC based on gross receipts in the immediately preceding calendar quarter (compared with the same quarter in 2019).
Additionally, that act added a third category – Recovery Startup Businesses. To qualify, in addition to having nerves of steel, you had to begin carrying on business after February 15, 2020, had gross receipts under $1 million, and weren’t eligible for the ERC under the other two categories we looked at, which were the partial/full suspension of operations or decline in gross receipts.
The credit for Recovery Startup Businesses only applies to the 3rd and 4th quarters of 2021. Each quarter is measured independently of the other, so you may not qualify for the credit in Q3 of 2021, but could for Q4 of the same year.
The Infrastructure Investment and Jobs Act of 2021 deemed that Recovery Startup Businesses were no longer subject to the business closure or gross receipts reduction to qualify, making all of these newer businesses eligible in the 4th quarter of 2021.
Finally, the American Rescue Plan Act followed that action by allowing businesses to qualify with gross receipts 10% less than what they were in a comparable quarter in 2021 (they can’t be Recovery Startup Businesses). This applies only to the third quarter of 2021.
If your head is spinning, don’t feel alone.
The ERC is complicated, and many CPAs are even unsure if their clients qualify. We’ve helped over 12,000 companies determine if they qualified for the ERC and have helped them recover over $2 billion.
Upon contacting us, we’ll conduct a thorough evaluation regarding your eligibility and complete a comprehensive analysis of your claim. From there, we’ll guide you through the ERC claiming process and help with all the required documentation. Our approach is quick and smooth, from determining eligibility all the way through to receiving your refund.
Contact Bottom Line Concepts and get qualified today. We’re on a mission to help small businesses impacted by the pandemic by maximizing the Employee Retention Credit Program.