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Employee Retention Credit: Is Your Business Affected by Government Shutdown Orders?

Due to governmental shutdown orders, your business may qualify for the Employee Retention Tax Credit (ERC), which can generate additional cash flow for your business. There have been significant changes to the ERC program, and, it has been extended until the end of 2021. This is a great tax-saving opportunity that you do not want to miss!

What Is the Employee Retention Tax Credit?

The ERC provides financial support to small businesses in the form of a refundable tax credit against the employers’ payroll tax obligation. ERC was passed in March 2020 as part of CARES Act. Initially, businesses who had Paycheck Protection Program (PPP) loans were not eligible for the ERC. After the Consolidated Appropriate Act passed in December 2020, businesses who had PPP loans could also claim ERC, if qualified.

At present, qualifying businesses can claim a 70% tax credit on the $10,000 wages paid to each employee per quarter. In 2020, the credit was 50% on $10,000 wages paid per employee per year. For businesses who qualified for the ERC in 2020, they will need to amend their 2020 payroll tax returns to claim the credit.

How to Qualify

There are two ways for a business to qualify for the tax credit in 2020 and 2021. The first one is revenue deduction. Per this requirement, businesses must have more than 50% reduction in revenue during any calendar quarter in 2020 compared to 2019. The requirement is reduced to 20% for 2021.

The second way to qualify for the credit is if a business was wholly or partially affected by a government shutdown order that prevented it from operating.

While the first requirement is relatively straightforward, the second one has drummed up a fair amount of controversy. Qualifying for the ERC under this requirement requires due diligence and detailed analysis of the business’s facts and circumstances. Several other variables impact a business’s eligibility. These include, but are not limited to:

  • Is the business a member of an affiliated group?
  • What was the duration of the impact?
  • Was the business required to modify its operations due to a governmental order?
  • Did the business experience significant interruption in its supply chain?
  • Did the business continue to have operational restrictions that prevented it from returning to its pre-pandemic operating level?
Due Diligence before Applying for ERC

If you are a business owner looking to see if employee retention credits and government shutdown orders apply to you, TALK TO THE WINDES TEAM. We can determine your eligibility for this credit to get you additional cash flow for your business.

View our webinar on ERC Business Essentials.

For questions or more information about this article, please contact our tax professionals at taxalerts@windes.com or toll free at 844.4WINDES (844.494.6337).

 

Employee Retention Credit Webinar
WEBINAR | ERC Business Essentials

This informative webinar discusses the ERC payroll tax credits that can be worth hundreds of thousands of dollars to your company AND help qualified employers keep their employees and businesses running during this pandemic.

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