My Business Experienced a Partial Shutdown During Covid. Am I Eligible for the Employee Retention Credit (ERC)?
When considering an organization's eligibility for the Employee Retention Credit (ERC), the IRS evaluates several criteria. One significant factor is the full or partial suspension of a business's trade or operations due to government orders in 2020 during the peak of the COVID-19 pandemic.
According to Section 2301(c)(2)(A) of the CARES Act, eligible employers include those that conducted a trade or business during the calendar year 2020. Additionally, for any calendar quarter, eligibility is determined based on two conditions: (1) the trade or business's operation in 2020 is fully or partially suspended due to orders from a governmental authority restricting commerce, travel, or group gatherings (commercial, social, religious, or otherwise) because of COVID-19, or (2) the calendar quarter falls within the period when the employer experienced a significant decline in gross receipts, as described in Section 2301(c)(2)(B) of the CARES Act.
A full suspension of business operations is straightforward to comprehend and evaluate since all activities came to a halt. However, what constitutes a "partial suspension"? Which operational changes qualify as a partial suspension and make an employer eligible for the ERC?
Examples of such changes include:
- Reduction in physical capacity for customers or employees
- Reduction in services offered
- Inability to access necessary equipment
- Travel restrictions that hinder business operations
Illustration of a Partial Suspension
Suppose you own a business manufacturing auto parts, and your local jurisdiction categorized your trade as essential, allowing you to continue operations. However, one of your suppliers faced a government-mandated suspension, impacting their ability to provide essential raw materials to your business. If you couldn't secure these raw materials from an alternative supplier, your normal operations would be disrupted. Even though your business remained open, you could still be eligible for the ERC since a government order affecting your supplier hindered your operations.
Testing the Impact of Government Shutdown on ERC Eligibility
How can you determine whether your business experienced a full or partial suspension due to a government order? In general terms, a suspension occurs when a government order directly affects the operational hours or service capacity of a business. If a business received a specific order to completely suspend its operations, it qualifies for the ERC. However, even if a business or a section of it was considered essential but faced limitations in operating hours and service capacity, it may still be eligible for the ERC as a partial suspension. While the ERC shutdown test may initially appear straightforward, there are numerous gray areas that the IRS has addressed.
Determining your eligibility for the ERC tax credit is crucial, as it can result in a credit of up to $26,000 per employee on your payroll. However, this specialized area of tax law requires expertise. That's where we come in. We have assisted clients nationwide in navigating the process. We simplify the complex process into a few simple steps. Firstly, we offer a free analysis to determine your eligibility. If you qualify, we will guide you through the necessary payroll information and forms to calculate your credit, and we'll assist you in submitting the paperwork.
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If our ERC analysis concludes that you are not eligible for the ERC, there is no cost for the review. This ensures that you don't miss out on any potential benefits. If we determine your eligibility, our service charge will be calculated alongside the free analysis, allowing you to see the credit amount you would receive and the percentage of the credit recovery that we would be paid. Our fee is significantly less than others and includes audit support and a CPA guarantee. Contact us today for your complimentary ERC estimate or if you have any questions.