Have you been wondering if you can get an Employee Retention Credit (ERC) if your business hasn’t had to shut down? You’re in luck!
The ERC is designed to help businesses that have suffered losses due to the COVID-19 pandemic. Even if you haven’t had to close, there are still certain requirements that must be met in order to qualify for the credit.
In this article, we’ll discuss what qualifies a business, the impact on operations, how gross receipts might decrease, and how to claim the credit.
What Requirements Qualify a Business
You may qualify for the Employee Retention Credit if your business experienced a decline in gross receipts OR is a recovery startup business. Imagine the relief that this credit could bring to you and your struggling business!
To be eligible, an employer can either have sustained supply chain issues OR any type of full or partial suspension of operations limiting commerce, travel, or group meetings due to COVID-19 and orders from an appropriate governmental authority. This includes reduced hours of operation or capacity restrictions. They could have experienced a decline in gross receipts during 2020, have experienced a decline in gross receipts during the first three quarters of 2021, or have qualified as a recovery startup business in either the third or fourth quarters of 2021.
It’s important to keep detailed records of all changes in gross receipt due to COVID-19 so that you can prove eligibility for the ERC if needed. If you think your business needs help now, research what local resources are available to assist with keeping employees employed while protecting their health.
The ERC is meant to incentivize employers’ efforts to retain employees despite financial strain caused by COVID-19 related restrictions. Eligible businesses may receive up to 70% of wages paid up to $10,000 per employee for taxable periods ending between March 12th, 2020 and December 31st, 2021. This means that businesses can receive up $7,000 per employee they keep on staff throughout these times. The funds received through this program can go toward reimbursing wages already paid out between March 12th, 2020 and December 31st, 2021 as well as subsidizing future payrolls until December 31st, 2021 – but remember that not every employee will qualify for every allowance!
In order to apply for the ERC program, it is necessary to fill out IRS form 7200 – Advance Payment of Employer Credits Due To Covid-19 – which can be found on the IRS website. This form contains instructions on how to calculate and claim any credits earned under this program along with information about when payments should be made if requested by employers seeking advance payment rather than waiting until filing taxes at year end.
Finally, make sure you understand all requirements set forth by both federal and state regulations before making any decisions regarding eligibility for this program!
Impact on Business Operations
The impact of the governmental order on business operations can determine whether an employer is eligible for employee retention credit, even if all operations remain open. If only a nominal portion of the employer’s business is affected by the order, then they may not be eligible for the credit, but an expert can determine that.
However, if more than a nominal portion of its business operations are suspended by a governmental order, OR if it was required to close during normal working hours, then it probably will qualify for employee retention credit.
To determine what qualifies as more than a nominal portion of its business operations, employers should look at their gross receipts and number of hours of service in comparison to that same calendar quarter in 2019. If either (i) the gross receipts from that portion of the business operations aren’t less than 10 percent of total gross receipts or (ii) the hours of service performed by employees in that portion of the business aren’t less than 10 percent compared to 2019’s numbers – then this would qualify as ‘more than a nominal portion’.
Employers should consider all factors when determining their eligibility for employee retention credit. Even though it might appear that an essential business hasn’t had any disruption due to government orders, depending on how much their normal operations have been affected – they might still be entitled to receive some form of compensation from the government.
It’s important for businesses to thoroughly research and evaluate any potential governmental orders before making conclusions about their eligibility for employee retention credits – as there could be hidden implications that could help them get financial relief during these difficult times.
Decrease in Gross Receipts
Gauging a decrease in gross receipts is key to determining eligibility for Employee Retention Credit. For 2020, quarterly revenue must decline by more than 50% compared to the same quarter in 2019. For 2021, quarterly revenue needs to be more than 20% lower than the same quarter of 2019. However, businesses can use the special rule and compare their 2021 quarterly revenue to the fourth quarter of 2020 if their 2021 first quarter revenues haven’t declined by more than 20%.
Businesses that began operations in 2019 will need to determine their base quarter until they reach a year of operations. If a business started in the middle of a quarter, an estimate of that period’s gross receipts can be used.
It’s important for employers to understand these rules and regulations when considering applying for Employee Retention Credit as it could help them keep their staff on payroll during tough times. To accurately calculate if they’re eligible, employers should have accurate records on hand so that they’re able to look back at previous quarters’ figures and compare them with current ones or estimate receipts from any partial quarters.
Employers should also keep up-to-date with any changes in regulations as this could affect how they approach calculating their eligibility for ERC credits. In addition, employers may want to consider engaging experienced tax advisors who can provide helpful insights into understanding what kind of information is needed when making such calculations and assessing eligibility criteria.
Understanding the requirements around gross receipt decreases helps employers navigate through difficult economic periods and make informed decisions about whether or not ERC credits are right for them and their businesses. This knowledge allows business owners to decide how best to manage resources available during these challenging times while still keeping employees employed and engaged with meaningful work activities.
How to Claim the Credit
Knowing how to properly claim the Employee Retention Credit can be a lifesaver for businesses struggling through tough times.
In order to access the credit, employers must compute their ERC for a pay period and adjust the required tax deposit downward by the credit amount. You may also request an advance by filing Form 7200 (Advance Credit Form) if your ERC exceeds your required deposit.
Eligibility for the ERC must be determined before filing Form 941 and can be claimed on it per instructions. The credit is reported on line 11c of Form 941 and, if applicable, line 13d, while qualified wages are reported on line 21.
Additionally, for 2021 businesses with 500 or fewer FTEs can claim an advance credit based on 70% of their average quarterly wages from 2019; further IRS guidance is needed in this regard.
All these considerations should be kept in mind when claiming the Employee Retention Credit to ensure you get what you’re entitled to.
Conclusion
You didn’t shut down, but you can still get employee retention credit.
This is a great opportunity to keep your business afloat and provide some financial relief. Even if your gross receipts have decreased significantly, the credit could be just the boost you need to make it through these tough times.
Imagine the feeling of being able to give back to your employees in this way – it’s like a huge weight off your shoulders!
So don’t miss out on this chance – take advantage of the employee retention credit today!