In 2020, Congress established the Employee Retention Tax Credit (ERTC) to incentivize businesses and non-profits to keep their employees on their payroll. Qualifying businesses and non-profits can receive a tax credit of up to $26,000 per W-2 employee.
There are many nuances to confirming that a business or non-profit qualifies for the ERTC tax credit/refund and multiple nuances to calculating the ERTC tax credit/refund.
There are two ways that a non-startup business can qualify for the ERTC program: the Gross Receipts Test and the Government Order test.
To qualify under the Gross Receipts Test, a business must have had a sufficient drop in revenue between quarters in 2019 and the same quarter in 2020 and 2021.
To qualify under the Government Order Test looks at the impact or "disruption" on the business operations resulting from government orders (a federal, state, county, health department, or city COVID mandate).
Examples of impacts on the operations of the business include the following:
Limitations on the number of employees or guests allowed in the factory, warehouse, showroom, offices, lobby, etc. of the business
Supply chain interruptions- Critical goods were not available to the business due to a full or partial shutdown
The requirement to shift hours to sanitize the business facility
Inability to access equipment
Limited capacity to operate
Limited ability to work with vendors, or as a vendor
Reduction in services or goods offered to customers
Inability to travel: To meet with clients or potential clients
Restrictions on group meetings
Required decreases or changes in hours of operation
Challenges finding and retaining employees
Cancelled in-person marketing events, including trade shows, home shows, golf events or non-profit galas
Mandatory business shutdowns
One aspect of a business closed down: For example, in the restaurant industry, if in-person dining was suspended but takeout was allowed. Or an essential medical organization that was allowed to remain open but could not perform elective surgeries
Businesses that operated in multiple locations; when one or more locations were fully or partially shut down while other locations were open
Businesses and non-profits can claim their ERTC credit retroactively for three years by making amendments to their 2020 or 2021 941 tax returns. You should consult a tax accountant or payroll specialist for up-to-date information.
For more on the Employee Retention Tax Credit (ERTC) and how it can benefit your business, contact Coomber Consulting, LLC at ERTCInfo@Coomber.com or call (760) 205-3810 to schedule an appointment today.