Employee Retention Tax Credit Eligibility: Who is Eligible?

Employee Retention Tax Credit Eligibility

After hearing about it, you may be wondering if you are eligible for the Employee Retention Tax Credit. Your company can get this fantastic tax advantage in three different methods. If you’re interested in applying for the Employee Retention Credit ERC, this article can offer you a rough estimate of how much you might anticipate getting.

The CARES Act, which includes the Employee Retention Credit ERC, was passed into law on March 27, 2020. However, many company leaders still know little to nothing about this federal initiative. Despite the widespread dissemination of information regarding the Paycheck Protection Program (PPP) and the Earned Income Tax Credit (EITC), many companies still lack clarity regarding the eligibility requirements for the Employee Retention Credit (ERC).

Can I Get a Credit or PPP for Keeping My Employees?

It’s a common misconception that people with PPP aren’t eligible for the Employee Retention Credit, and I’d like to set the record straight. There was indeed such a rule in the past, but it has been revised several times.

To be absolutely clear: if you were awarded PPP, you are now eligible to apply for the Employee Retention Credit. Actually, ERC may be preferable to PPP for your company. Whereas the PPP had strict limits on how much could be used for payroll, the ERC provides for as much as $26,000 per W2 worker.

Who May Claim the Payroll Tax Credit for Employee Retention?

If your company meets one of these three requirements, you may be eligible for the Employee Retention Payroll Tax Credit. Once more, only one of these requirements needs to be met for your company to qualify for the Employee Retention Credit ERC:

Income Qualifier: I’d like to talk about cutting back on income. There is widespread belief among business owners that ERC eligibility is lost if annual gross sales are higher in 2020 or 2021 than in 2019. That’s not even close to being correct! For the period beginning March 13, 2020, and ending December 31, 2020, firms must have a 50% reduction in gross revenue compared to the same quarter in 2019 in order to qualify using revenue reduction.

When comparing 2021 to 2019, the IRS was more accommodating, allowing a quarterly 20% gross revenue cut in Q1, Q2, and Q3. Consequently, you do meet the requirements if your company experienced a drop in total revenues. However, there are a total of three possible factors to consider when determining ERC eligibility, and the Revenue Qualifier is just one of them.

If your business was partially or completely shut down due to government mandates, you may still be eligible for ERC even if your gross receipts in 2020 and 2021 were higher than in 2019. Currently, I’m working with the ERC Specialists to compile a list of federal and state government shutdowns. Use this data to prove that you’re entitled to the Employee Retention Credit ERC due to a temporary or permanent shutdown of your business.

Contamination of the Supply Chain Eligibility Criteria – Think of it like this… This is March 2020, and the entire planet has gone dark. Numerous government stimulus packages are passed, and a new tax credit known as the Employee Retention Tax Credit is introduced and handed over to the Internal Revenue Service. But the Internal Revenue Service, let’s be honest here, didn’t have time to figure out everything about this operation.

For instance, the IRS revised the guidelines a few months after ERC became law in order to make clear one of the requirements for qualification. They claimed that companies just “nominally” affected by an interruption in the supply chain were eligible for ERC. They emphasized that 10% was the threshold at which “nominally” was used.

So long as your company was significantly damaged (10% or more) by supply chain interruption, it may be eligible for the Employee Retention Payroll Tax Credit, even if it was an essential firm that remained operating and/or if it performed better in 2020 and 2021 than in 2019.

Examples of Supply Chain Disruption

Working with the ERC Specialists has helped me grasp the scope and depth of this qualification, and provided me with concrete examples of supply chain disruption

  • Imagine you run a factory and have a warehouse to store your products. It’s possible that production losses were more than 10% due to a lack of inputs. We are not discussing labor here, but rather the supply chain.
    There was a chance that your distribution center would remain operational and that your sales team would be able to receive calls. Supply chain disruptions had more than a minimal effect on your regular operations, thus you couldn’t run your firm as usual.
  • As a landscaper, you’re responsible for tasks like putting up sprinkler systems. However, supply chain issues prevented you from acquiring the sprinkler heads. This is a little disruption in the supply chain.
  • Franchised car lots that were unable to stock up on fresh inventory due to the shortage of available semiconductor chips. In terms of supply chain disruption, this is a fairly minor event.

If your company has been adversely affected by a supply chain disruption and you believe you may be eligible for a refund of federal payroll taxes already paid, the ERC Specialist can help you prove it.

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