Originally introduced in 2020 to make it easier for businesses that kept their employees on payroll during the COVID-19 Pandemic, the Employee Retention Credit (ERC) is a refundable tax credit for companies that experienced a full or partial government-ordered shutdown, or experienced a decline in gross receipts. Hull & Knarr provides peace of mind to companies that do not have the bandwidth or desire to take on an additional project and/or stay current with the numerous legislative updates required to meet compliance standards and maximize their benefit.
Multiple legislation changes have now qualified a much greater group of companies for the credit, even if they were previously told they would not qualify. Below is a list of reasons why companies don’t believe they qualify for the ERC, or are reasons they were told they didn’t qualify:
- They received one or more PPP loans that were forgiven.
- They had more sales in 2020 and 2021 than in 2019.
- They didn’t encounter a full or partial shutdown due to COVID.
- They didn’t start their business until 2020 so they don’t qualify.
New guidance issued in late 2021 provided that under section 206(c) of the Taxpayer Certainty and Disaster Tax Relief Act of 2020, an employer that is eligible for the employee retention credit (ERC) can claim the ERC even if the employer has received a Small Business Interruption Loan under the Paycheck Protection Program (PPP). The eligible employer can claim the ERC on any qualified wages that are not counted as payroll costs in obtaining PPP loan forgiveness. Any wages that could count toward eligibility for the ERC or PPP loan forgiveness can be applied to either of these two programs, but not both.
When determining qualification based on a decline in gross receipts, this is looked at using gross receipts on a quarter-by-quarter basis, not a year-by-year basis. To qualify in 2020, the comparison is made by comparing gross receipts from a specific quarter against the same quarter in 2019. The same goes for 2021, where the comparison will still be made against the specific quarter in 2019.
If companies did not experience a full or partial shutdown due to government order in 2020 or 2021, they are still eligible to qualify if they experienced a decline in gross receipts. They did not have to experience BOTH a government-ordered shutdown and a decline in gross receipts.
Hull & Knarr helps companies that confirm their eligibility in a few easy steps:
- Step 1: Review quarterly income statements from 2019 – 2021
- Step 2: Review PPP forgiveness applications and associated wage schedules if accessible
- Step 3: Review how many employees the company had in 2019, 2020 and 2021
With this information, Hull & Knarr can confirm if your company qualifies or not, and what the opportunity is so you can decide if it makes sense to pursue further. Should you determine the dollar amount is significant to your business, Hull & Knarr will lead you through the entire process, ensuring your claim is accurate and compliant.
*Companies created after Feb. 15, 2020 may be eligible to claim the ERC by meeting the criteria as a Recovery Startup Business.