Does Your Business Meet ERC Partial Shutdown Requirements?
The Employee Retention Credit (ERC) is legislation that puts hundreds of thousands of dollars back into eligible small businesses. Unfortunately, trying to understand the requirements to receive this credit can be confusing.
Many of the IRS ERC website pages are outdated, and additional legislation changed the qualifications, including the qualifying time periods. Without knowing about the ERC’s three separate amendments, a CPA may have said that your business doesn’t qualify for the payroll tax credit because it received loan forgiveness through the Paycheck Protection Program (PPP). You may also worry that it doesn’t meet the requirement of a “partial shutdown” and other guidelines.
Firstly, your business can have a PPP loan and be eligible for the ERC. Secondly, Innovation Refunds has your company’s back when it comes to understanding the qualifications. Below, we’ll dive deep into eligibility options, including shutdown requirements and whether or not your business should apply for the Employee Retention Credit.
ERC Eligibility: Partial Shutdown Requirements
Thousands of businesses qualify for the ERC because the legislation was designed to help companies that were negatively impacted by COVID-19. However, the exact requirements can be a bit confusing since the qualifications are different for 2020 and 2021.
Your business may qualify for the 2020 ERC if:
● It had less than 100 employees on its payroll in 2019.
● It kept employees on its payroll.
● It suffered during the pandemic, meaning:
○ Its revenue decreased by 50% or more for any 2020 quarter than the same 2019 quarter.
OR
○ It was forced to shut down or partially suspend operations due to a government order for any 2020 quarter.
Your business may qualify for the 2021 ERC if:
● It had less than 500 employees on its payroll in 2019.
● It kept employees on its payroll.
● It suffered during the pandemic, meaning:
○ Its revenue decreased by 20% or more during any of the first three quarters of 2021 compared to the same quarter of 2019.
OR
○ It was forced to shut down or partially suspend operations due to a government order during the first three quarters of 2021.
What exactly is a partial shutdown, and what can you do to see if your business meets the definition? The ERC partial suspension test can help you discover if your business was partially shut down.
What Is the ERC Partial Suspension Test?
To meet IRS ERC partial shutdown guidelines provided in the IRS Notice 2021-20, you can apply the partial suspension test. This is an evaluation to see if your daily business operations were slowed down enough to count as partially closed.
ERC Partial Shutdown: What Counts
Even if your business remained open during 2020 and 2021, it may have experienced partial suspension of its daily operations if your company experienced limited:
● Commerce
● Travel
● Group meetings
● Delivered product from impacted suppliers (supply chain)
● Hours of operation
The pandemic may have affected your company’s operations and made growth difficult. However, the impact of the partial closure needs to be more than nominal.
The Employee Retention Credit Nominal Effect
According to Notice 2021-20 Subsection C (questions 10 through 25), nominal is considered less than 10% in a reduction of total gross receipts or less than 10% of the total logged employee work hours.
For example, if your team was unable to attend a meeting, trade show, or convention one time due to COVID-19 travel restrictions, that may not be considered partially shutdown. However, if a recurring work event had to be canceled due to a government order that limited building occupancy (due to social distancing), it may make your business eligible for the ERC.
Another example of a significant impact to your business is if it was unable to sell one of its main products or was forced to make substitutions due to supply chain issues. These may have been caused by government orders that resulted in reduced supplier hours.
Still Wondering If Your Business Qualifies for the ERC?
Even if your business wasn’t partially shut down, it may still qualify if it suffered financially.
The ERC partial shutdown guidelines are just one of many challenges your business may face to get its payroll tax refund. The good news is that eligible businesses can still claim their Employee Retention Credit for 2020 and the first three quarters of 2021.
