IBA, as the premier business brokerage firm in the Pacific Northwest, is firmly established as a respected professional service firm in the legal, accounting, banking, mergers & acquisitions, real estate, and financial planning communities. Periodically, we will post guest blogs from professionals with knowledge to share for the good of owners of privately held companies & family owned businesses. The following blog article has been provided by Sam Outlaw of Synergi Partners (www.synergipartners.com):
CARES Act Employee Retention Credit Eligibility for Business Owners
You’ve likely come across an ample amount of “ERC” related emails and articles over the past year. In turn, you may have received guidance from advisors on the legitimacy of the credit. Understanding the details of the legislation can be challenging- so allow me to share an overview of the ERC, the legislative intent behind it, as well as common misconceptions that have come from changes made.
The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was signed into law on March 27, 2020, to address the negative economic impact of the COVID-19 pandemic. Within the CARES Act, Congress created the Employee Retention Credit (“ERC”), a fully refundable payroll tax credit. The intent was to aid businesses that experienced certain financial declines or business operations limitations as a result of the pandemic yet continued to retain employees.
Eligibility for the ERC is evaluated on a quarterly basis and is based on each employer’s specific facts and circumstances. An employer is eligible for the ERC if it experienced either:
- a full or partial suspension of business operations due to orders from an appropriate governmental authority limiting commerce, travel, or group meetings (for commercial, social, religious, or other purposes) due to COVID-19; or
- a significant decline in gross receipts (50% decline in gross receipts in 2020 compared to the same quarter in 2019; 20% decline in gross receipts in 2021 compared to the same quarter in 2019).
Employers who are eligible for the ERC in a given quarter may qualify for 50% of up to $10,000 in qualified wages in 2020 per employee for the year, and 70% of up to $10,000 in qualified wages per employee, for the first 3 quarters in 2021.
5 Misconceptions of the CARES Act ERC
We took the PPP, so we are not eligible.
False. The Consolidated Appropriations Act amended the original CARES Act ERC to permit businesses that received Paycheck Protection Program (PPP) loans to be eligible for the ERC if they experienced:
- a full or partial suspension of business operations due to government orders enacted in response to the COVID-19 pandemic (the “Government Orders Test”), OR
- a significant decline in gross receipts (the “Gross Receipts Test”).
However, PPP recipients who are eligible for the ERC cannot include wages that were paid with forgiven PPP loan proceeds in the ERC calculation.
We are an essential business, so we are not eligible.
False. The ERC does not make a distinction between an “essential” or “non-essential” employer. A business, whether classified in state or local orders as essential or not, may be eligible for the ERC so long as it satisfies the Government Orders Test or Gross Receipts Test. For example, a business that was classified as “essential” by a government order and was able to continue to operate may nonetheless have experienced a partial suspension or a significant decline in gross receipts and be eligible for the ERC.
We did not shut down our offices, so we are not eligible.
False. An employer is eligible for the ERC if it can meet the Government Orders Test or the Gross Receipts Test. The Government Orders Test provides a business must have experienced a full or partial suspension of business operations due to government orders enacted in response to the COVID-19 pandemic. A “partial suspension” of operations does not mean a complete cessation of operations or closure of locations. Thus, a business can demonstrate a partial suspension of operations through other impacts to operations, such as the inability to perform certain services. Whether a business experienced a full or partial suspension is a facts and circumstances analysis.
Our operations were suspended, but we were profitable, so we are not eligible.
False. The ERC does not require a business to experience a decline in revenue to be eligible for the ERC. The intent of Congress is clear in the plain language of the legislation, which provides that an employer must satisfy the Gross Receipts Test or the Government Orders Test, not both. Thus, a company does not have to experience a decline in revenue to be eligible for the ERC.
We are a non-profit, so we are not eligible.
False. The ERC has always been available to non-profits who satisfy either the Government Orders Test or Gross Receipts Test. The ERC has benefited many non-profit organizations such as non-profit schools, hospitals, churches, and day-care centers.
Given the complexities of the ERC, it is wise to consult a professional who has experience in this area when trying to determine whether your business is considered an eligible employer.
If you have questions relating to the content of this article or any issues related Employee Retention Tax Credits, Sam Outlaw would welcome the opportunity to answer them. Mr. Outlaw can be reached at (678) 735-2295 or email@example.com. IBA’s VP of Business Development, Curt Maier, is also familiar with Synergi Partners and ERC Tax Credits. He can be reached at (425) 454-3052 or firstname.lastname@example.org.
Synergi is operated by tax credit industry veterans with more than 40 years of experience and is the largest privately owned tax credit and incentive consulting company in the United States. Synergi specializes in identifying and processing federal and state tax credits for employers across the United States, including Puerto Rico.
IBA, the Pacific Northwest’s premier business brokerage firm since 1975, is available as an information resource to the media, business brokerage, mergers & acquisitions, real estate, accounting, legal, and financial planning communities on subjects relevant to the purchase & sale of privately held companies and family owned businesses. IBA is recognized as one of the best business brokerage firms in the nation based on its long track record of successfully negotiating “win-win” business sale transactions in environments of full disclosure employing “best practices”.