The COVID-19 payroll relief bill can generate up to millions in refundable tax credits, yet many businesses hesitate to apply. At R&D Incentives Group, we’ve helped over a thousand businesses qualify and generate anywhere from 20k to 4 million in cash refund checks from the ERC.
Many CFOs who received payouts did not initially think they qualified for the credit because a basic assessment of their financials did not reveal the range of COVID-19 related impairments. However, after doing more exploration internally through their VP or Head of Ops, these CFOs found that there were many challenges their operations went through due to COVID-19.
Here are three common misconceptions we’ve heard, and why they’re wrong:
“I don’t qualify if my revenue never went down.”
Some CFOs were surprised to learn that a decline in revenue is not needed to qualify for the ERC credit. Businesses can also qualify for the credit if a portion of their operations were affected by government mandates by more than a nominal amount. Through this criteria, businesses that didn’t experience a decline in gross receipts or even experienced an increase in gross receipts, can still qualify for the credit if they show that a significant “nominal portion” of their business was impaired, changed and/or curtailed by government orders. That significant portion only needs to be 10% of the entire business in terms of revenue or hours worked during the pre-covid 2019 period. In addition, businesses must show that they experienced some reduction in their ability to provide their goods and/or services due to government mandates.
At R&D we recently helped a manufacturing company qualify for the ERC credit based on impairment related to social distancing. Only the warehouse department was affected by social distancing orders, but since over 10% of employees at the business worked in the warehouse, that qualified them under the “nominal portion” criteria. Then, we just had to show that social distancing mandates caused the warehouse department to decline in productivity by over 10%, proving that government orders had more than a nominal effect on the firm’s operations. This qualified the business for the ERC, and as a result they received over $3 million in cash refunds.
“I don’t qualify if we stayed open.”
Businesses that didn’t shut down and remained open as essential businesses are also still eligible to receive the ERC. There are two methods through which a business that didn’t shut down during the pandemic can still qualify for the credit. The first is through a decline in gross receipts. If a business experienced a decline in gross receipts of over 50% in 2020 or over 20% in 2021 compared to the same quarter in 2019, it can still qualify for the credit, whether the business was shut down or not.
If the entire business did not shut down, but parts of it did: e.g.: You own a restaurant that normally serves both in-person dining and takeout, and during the pandemic you shuttered in-person dining but remained open for takeout, you can also still qualify for the credit.
“I don’t qualify if I received PPP”
Another misconception is that businesses which received PPP loans are not eligible to qualify for the ERC. This is another case of changing IRS regulations which expanded the ERC program significantly. In 2021, the ARPA and CAA allowed all businesses who received PPP to retroactively claim the ERC credit. This means that you can still qualify for the credit if your business received PPP in 2020 and/or 2021. At R&D, our team of experts will analyze your PPP loan to figure out how best to maximize your credit.
If you think there’s even a chance you may be able to qualify, you should consult with a firm that specializes in the ERC credit. An experienced and reputable firm will be able to talk you through all possible avenues of eligibility, leading you to an educated result that you can trust. Remember: If your business was affected by COVID-19 mandates at the federal, state, or county level, you should consider exploring whether you qualify for the Employee Retention Credit.
We’ve helped manufacturers, restaurants, non-profits, schools, food distributors, home health care agencies, construction companies, law firms, engineering firms, consultants, service providers and more qualify for the ERC, and generated millions back in the form of cash refunds. If they can do it, why not you?
Gabriella Del Greco is a project associate and technical writer at R&D Incentives Group. Learn more at rdincentivesgroup.com.
