What Is the ERC?
How Do I Qualify?
The Employee Retention Tax Credit (ERC) is the largest government stimulus program in history and was signed into law in March 2020
What is ERC
The Employee Retention Credit (ERC) is a refundable payroll tax credit, up to $26,000 per employee, available through the CARES Act to businesses impacted by COVID-19. Businesses may qualify through either a reduction in revenue, a supply chain disruption, or a partial or full suspension of business operations.
The 6 Most Common Misconceptions Regarding the ERC
We are considered an essential business and do not qualify.
False: An essential business can qualify for the ERC because gross receipts declined by 20% year-over-year or because its operations are fully or partially suspended because of a government order.
We took the PPP and do not qualify.
False: The stimulus package passed in December 2020 has always allowed for companies who received PPP funds to also take the ERC!
Our business stayed open the whole time and does not qualify.
False: Your company most likely had to perform extra cleaning or sanitizing, installing/utilizing protective equipment, temperature checks, change in job roles/functions, and more. If your business had to change operations in any way due to governmental orders OR if gross receipts declined by 20% year-over-year, your business qualifies.
Because our company didn't experience a year-over-year decline in sales by 20%, we do not qualify.
False: Your company had to see either a 20% decline in gross receipts OR a suspension in operations, not both. Almost every business has been impacted in some way by a national, state, or local governmental order, therefore qualifying the business.
We were profitable during the pandemic, so we do not qualify.
False: Even if you have been profitable, we have helped many companies that were profitable in 2020 receive anywhere from thousands to millions of dollars in credits. This includes grocers, manufacturing, logistics companies, and more. If your business has been impacted in some way by the pandemic, you qualify.
We do not pay taxes because we are a nonprofit, and do not qualify.
False: Due to recently modified rules, this tax credit applies to tax-exempt organizations if the business operations have been fully or partially suspended due to governmental orders related to COVID-19. Many nonprofit daycares, schools, daycares, counseling centers, ministries, churches, and clubs closed their buildings and/or partially suspended services to comply with government orders and guidelines. This suspension of operations would qualify that organization for the ERC.
How can you qualify for the ERC?
What are the stipulations of Revenue Reduction?
Qualification Option
#1: Revenue ReductionThe most straightforward way to qualify for the Employee Retention Credit is froma qualified revenue reduction during the qualification period of the program.The revenue reduction requirements for qualification are below.
ERC Revenue Reduction Qualification
2020 - 50% reduction of gross sales for the 2020 quarter as compared to the same quarter in 2019. When/if the revenue reduction in 2020 gets back to 80% of the 2019 level, the qualification ends
2021 - 20% reduction of gross sales for the 2021 quarter as compared to the same quarter in 2019 (or 2020 if you were not in business during the quarter in 2019). The alternative look back option allows the business to use the previous quarter compared to the same 2019 quarter to qualify
What are the stipulations of Supply Chain Disruption?
Supply chain disruption is a common qualification for businesses that rely upon vendors and suppliers for their business to function properly. This qualification must have resulted from a government suspension order to your supplier that resulted in the supplier not being able to deliver critical goods, but may continue beyond the original suspension order. The specific requirements for this qualification are listed below.
Note: These impacts qualify a company regardless of revenue gain or loss.
ERC Supply Chain Disruption Qualification
More than Nominal Impact - The supply chain disruption must have resulted in a more than 10% impact on your business. This can be directly from the reduction of sales from the inability to procure the supply item, or from the impact not being able to procure the item had on your business. To calculate the more than 10% impact, evaluate the impact of the supply item on your 2019 gross receipts. For example, if you were not able to procure pallets for shipping of goods, consider how much of your business relied upon pallets in order to operate in 2019. If it was more than 10%, this qualification can apply.
No Replacement Supplier - The business must not have been able to find a replacement supplier for the supply item affected by the government suspension order
Please reference the IRS notices pertaining to supply chain disruption qualification: Notice 2021-11 & Notice 2021-20
What are the stipulations of Suspension of Operations?
The partial or full shutdown qualification is based on a "suspension test" to demonstrate that your operations were partially or fully suspended due to a Covid-19 governmental order. Keep in mind, a government restriction may have had a direct impact on your operations even though that shutdown order wasn't given to you directly.
IMPORTANT: This qualification only applies during the period of the actual government order. Since there were very few government shutdown orders during 2021, this qualification mainly applies to 2020 quarters.
ERC Full or Partial Suspension Qualification Requirements
More than Nominal Impact - The partial suspension from a government order must have had a more than nominal effect, which means it affected more than 10% of business operations. This impact can come from a reduction in business hours of 10% or more, or a suspension of your business operations that represented 10% or more of gross receipts as compared to 2019. (This DOES NOT mean that a 10% reduction in sales is required to qualify, but the order must have suspended at least 10% of your revenue producing operations.)
Hourly example: Government orders required a restaurant to close 2 hours early due to curfew requirements. The 2 hours represented 15% of the business working hours. This business qualifies for the period affected by the government order.
Gross receipts example: Government orders required a radiology clinic to stop elective procedures during Q2 & Q3 of 2020. The business reviewed their gross receipts for Q2 & Q3 of 2019 and determined that the suspended elective procedures represented 18% of their total gross receipts during those quarters. This business qualifies for these two quarters.
Please reference the IRS notices pertaining to supply chain disruption qualification: Notice 2021-11 & Notice 2021-20
ABOUT PERRY PEREDO
Getting the right information into people's hands!
Perry has a 15-year history in financial and insurance services and works very closely with financial teams, firms, and individuals on practice development, relationship management, and execution. He is also an experienced public and motivational speaker with over 75 national appearances for private firms and companies. Perry is owner of Guaranteed Payroll Solutions, a payroll and bookkeeping firm based out of Las Vegas.
Over the last year, conversations regarding the ERC tax refund began happening more and more frequently and many of the details being shared were either guesses, or flat out wrong. Misinformation was rampant!
Perry developed an affiliate relationship with LG Resources - one of the leading processors of ERC tax credits in the country - so that he could be a reliable source of knowledge for HIS client and for THEIR clients.
To date, Perry has helped facilitate the refund of over $40 million to his clients.
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