Every other firm is running to grab ERC benefits, but does my company qualify for the ERC qualification requirement even if my business did not have a drop in gross revenue?

Is this the question that you have been asking yourself recently? Well, Why couldn’t you be? After all, every company that has gone through a significant loss or even shut down due to government mandate is obliged with Covid-19 relief ERC benefit. 

However, those who haven’t depicted any significant drop in gross revenue are left wondering what are their ERC qualification requirement and whether they are qualified for such a benefit or not. 

The answer is YES! Even if your business did not have a drop in gross revenue, you still can grasp and enjoy all the ERC benefits if you fulfill the ERC qualification requirement. Starting from the year 2020, when ERC first came into public, to the current year, 2023. This act has come up with many changes over time, and when looking at current ERC qualification criteria. It trun out big news for companies waiting to secure ERC benefits. 

So, to inform you of the changes that make your company stand on ERC qualifications requirement. In this blog, we are providing general guidelines to help businesses determine their eligibility for the ERC. 

ERC Qualification Requirement: How Can Businesses Determine Their Eligibility For The ERC?

The Employee Retention Credit (ERC) is a tax credit intended to encourage businesses to keep employees on their payroll during the COVID-19 pandemic. Many businesses assume they don’t qualify for the ERC if they don’t experience a drop in gross revenue.

While a decline in gross receipts is one of the eligibility criteria for the ERC, there are other factors that determine eligibility, such as a significant decline in business activity or the suspension of operations due to government orders. Therefore, it is essential that an employer must know the ERC qualification requirement, carefully review such requirements and consider whether they are able to qualify for the credit or not. 

 Determine Whether Your Business is Eligible For The ERC 

 To determine whether your business is eligible for the ERC or not you must consider the following:

  • Decide if your business was impacted by COVID-19:

Businesses must demonstrate that they were either partially or fully suspended due to a government order related to COVID-19, or they experienced a significant decline in gross receipts (i.e., a reduction of 50% or more) in any quarter of 2020 or 2021 compared to the same quarter in the prior year.

  • Determine the number of employees:

Businesses with 500 or fewer employees are generally eligible for the ERC. However, there are special rules for businesses with more than 500 employees.

  • Business operations were fully or partially suspended due to a government order related to COVID-19:

Businesses that were forced to shut down or limit operations due to government orders related to COVID-19 may be eligible for the ERC. This includes businesses that had to close because of stay-at-home orders or social distancing requirements.

  • Identify the relevant time period:

For wages paid between March 12, 2020, and December 31, 2020, businesses can claim the ERC for up to 50% of qualified wages paid to employees, up to a maximum credit of $5,000 per employee. For wages paid between January 1, 2021, and December 31, 2021, businesses can claim the ERC for up to 70% of qualified wages paid to employees, up to a maximum credit of $28,000 per employee.

  • Gross receipts declined:

Businesses that experienced a significant decline in gross receipts due to COVID-19 may be eligible for the ERC.  The threshold for the decline in gross receipts has changed over time, so businesses should consult the most recent guidance from the IRS to determine the current threshold.

To get a better outlook on ERC eligibility, we recommend businesses consult with a tax professional to ensure that they’re eligible for the ERC and that they’re maximizing their credit amount. The rules surrounding the ERC can be complex, and a tax professional can help businesses navigate the process and ensure that they’re taking advantage of all available credits.

How your businesses can claim the ERC?

To claim the Employee Retention Credit (ERC), businesses need to complete Form 941, the employer’s quarterly federal tax return and include the credit on that form. Here’s the step-by-step process for claiming the ERC:

  • Calculate the credit: 

Businesses should calculate the amount of credit they’re eligible for using the formulas provided by the IRS. The amount of the credit is generally equal to 50% of qualified wages paid to employees during the applicable calendar quarter, up to a maximum of $10,000 per employee.

  • Claim the credit on Form 941: 

Businesses can claim the ERC on Form 941, which is used to report quarterly payroll taxes. Businesses should complete the form as usual but also include the ERC credit amount on line 11c.

  • Reduce payroll tax deposits: 

Businesses can reduce their required payroll tax deposits by the amount of the ERC they are eligible for. If the credit exceeds the required payroll tax deposit, the excess can be refunded or applied to future payroll tax deposits.

  • Keep appropriate records: 

To support their claim for the ERC, businesses should keep appropriate records, including payroll records and documentation of the COVID-19-related reasons that made them eligible for the credit.

List of Documentation You Need To Provide To Claim The ERC 

Documentation that businesses need to provide to claim the ERC may include:

  • Documentation showing the number of full-time employees and their wages, including federal employment tax returns and payroll records. 
  • Documentation showing that the business was fully or partially suspended due to a government order related to COVID-19.
  • Documentation showing that the business experienced a significant decline in gross receipts, such as financial statements or bank records. 

It’s important for businesses to keep accurate records and documentation to support their claim for the ERC. They may also want to consult with a tax professional to ensure that they are claiming the credit correctly and to maximize their credit amount.

Do I qualify for ERC if my business did not have a drop in gross revenue?

If your business did not experience a drop in gross revenue, you may still qualify for the ERC if your business was fully or partially suspended due to a COVID-19-related government order. 

For example– If a government order required your business to close or reduce operations, you may be eligible for the credit. Additionally, if your business maintained an average number of full-time employees during the qualifying period, you may still qualify for the credit.

In A Nutshell – 

The ERC can be a valuable resource for businesses that have been impacted by the COVID-19 pandemic. While qualification requirements do include experiencing a significant decline in gross receipts, there are other criteria that businesses can meet to be eligible for the credit.

If you believe your business may be eligible for the ERC, it’s worth exploring the qualification requirements and speaking with a tax professional to determine if you can claim the credit.

Apply for quick ERTC guidance and application process at GConnnect Pro and get it done by tax experts right on time.