If you’re a business owner, the last couple of years have probably been a bit of a rollercoaster for you. But there’s a light at the end of the tunnel, and it comes in the form of the Employee Retention Tax Credit (ERTC). This program is designed to give businesses a pat on the back for keeping their employees on the payroll during difficult times. This guide will help you understand ERTC eligibility for mid-sized businesses, and how to claim what you’re owed.
- The ERTC is a refundable tax credit available to qualifying mid-sized businesses.
- Eligibility is based on government orders, a decrease in gross receipts, and other factors.
- The rules for eligibility changed between 2020 and 2021.
- Claiming the ERTC can provide much-needed financial relief.
- Proper documentation is crucial for a successful ERTC claim.
Introduction
Let’s start by explaining what the ERTC is. It’s a tax credit that the U.S. government offers to help businesses like yours keep their workforce intact during the COVID-19 pandemic. If you’ve been able to keep your staff on payroll despite the economic challenges, you may be eligible for a significant credit against your payroll taxes. And if your credit is more than the taxes you owe, you could get the difference back as a refund.
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ERTC Considerations for Mid-Sized Businesses
Mid-sized businesses face unique challenges when it comes to the ERTC. Unlike small businesses that might have simpler structures or large corporations with extensive resources, mid-sized businesses have to juggle complex operations with fewer resources. That’s why it’s important to understand the ERTC—it could be the difference between merely surviving and flourishing in this new business environment.
- While ERTC is available to businesses of all sizes, mid-sized businesses often have more to gain or lose.
- A thorough understanding of ERTC eligibility can help you get the most out of your credit.
- Mid-sized businesses often have more complex structures, making professional advice a good idea.
Now, let’s take a closer look at the ERTC to see how it might apply to your business. The ERTC is available for wages paid up until December 31, 2021. In 2020, the credit can be up to 50% of qualified wages paid, up to $10,000 per employee for the year. In 2021, it’s even more generous, offering up to 70% of qualified wages, up to $10,000 per employee per quarter. For a detailed understanding, consider using this ERTC eligibility checklist to maximize your credits.
Getting to Know the ERTC: A Quick Introduction
The ERTC is a saving grace for businesses hit by COVID-19. To put it plainly, if your business operations were either completely or partially halted by government orders due to COVID-19, or if you’ve experienced a substantial decrease in gross receipts, you’re probably a contender for this credit.
Why You Should Claim the ERTC
Claiming the ERTC is about more than just receiving a tax credit. It’s about ensuring the longevity of your business and the livelihood of your employees. It’s an opportunity to recover some of your losses and reinvest in your business. And since it’s a refundable credit, you could end up with extra cash in your pocket.
Can mid-sized businesses qualify?
Are you wondering if mid-sized businesses qualify for the ERTC? The answer is probably yes. However, there are certain qualifications you must meet. Let’s take a look at what those qualifications are so you can start the process of claiming your credit.
Qualifications for Mid-Sized Businesses
Your mid-sized business may qualify for the ERTC if it has either been fully or partially shut down due to government orders related to COVID-19, or if it has seen a significant decrease in gross receipts. However, these are not the only factors to consider. The size of your business and the number of employees you have also affect how much you may be able to claim.
It’s important to examine the differences between the rules for 2020 and 2021 because they aren’t identical. In 2020, a substantial drop in gross receipts was defined as a decrease of over 50% compared to the same quarter in 2019. However, in 2021, this threshold was reduced to a 20% decrease. This shift could significantly impact whether you qualify. For a detailed understanding, review the ERTC eligibility checklist to maximize your credits.
Differences in 2020 and 2021 Eligibility Requirements
Let’s dive into the details. The ERTC in 2020 covered up to 50% of qualified wages, with a cap of $10,000 per employee for the whole year. For 2021, the credit was increased to cover 70% of qualified wages, up to $10,000 per employee per quarter. That’s a possible $28,000 per employee in 2021 alone!
Limitations on Business Operations
Government-mandated limitations on your business operations may influence your ERTC eligibility. This is particularly important for mid-sized businesses, which often need more space and resources to function.
- Did government mandates restrict the number of customers you could accommodate?
- Did you have to cut back on your operating hours?
- Did these limitations affect your income?
If you answered ‘yes’ to any of these questions, you’re on the right path to potentially qualifying for the ERTC.
How to Document Capacity Restrictions for ERTC Claims
When it comes to demonstrating capacity restrictions for the ERTC, documentation is key. You’ll want to compile any government mandates that were relevant to your business, as well as records that illustrate the effect on your operations. This could range from decreased customer receipts to shift schedules that reflect cut back hours.
Crucially, maintain a meticulous record of how these restrictions directly impacted your business. Were you required to refuse service to customers due to capacity restrictions? How many were there? What was the projected revenue loss? The more comprehensive your documentation, the more compelling the case you can present to the IRS.
Limitations on Customers or Vendors
Qualifying for the ERTC isn’t only about government restrictions; it’s also about the practical effects of doing business in a pandemic. If your customers couldn’t get to your business because of lockdowns or fear of COVID-19, or if your vendors were limited in a way that affected your supply chain, you could qualify.
How Customer Accessibility Affects ERTC Qualification
Think about how issues with customer accessibility may have impacted your business. If you’re a restaurant that was unable to provide dine-in services, or a retail store that experienced decreased foot traffic due to public health worries, these situations could potentially make you eligible for the ERTC. It’s about the wider economic impact, not just the specifics of the law.
So, make sure to record any local advisories that suggested or required customer limitations, and look at your sales numbers from before and during these advisories. This information is vital for backing up your ERTC claim.
How Vendor Limitations Affect ERTC Qualification
Just like customer restrictions, vendor limitations can have a significant impact. If your suppliers were shut down or delayed, causing you to lose business or incur additional costs, these disruptions are relevant to your ERTC claim.
Let’s say you run a manufacturing business, and your key component supplier couldn’t deliver, causing production delays. This would be a factor that contributes to your ERTC eligibility. Be sure to keep a record of these incidents, including any communication with your vendors that talks about the delays or shutdowns.
Disruptions in the Supply Chain
The pandemic has caused many disruptions in the supply chain, which has greatly affected businesses. For the ERTC, these supply chain disruptions could be a valid reason for a claim if they have had a significant impact on your operations.
How Supply Chain Disruptions Can Help You Qualify for ERTC
If supply chain disruptions prevented you from meeting customer demand or forced you to find alternative—and potentially more costly—suppliers, you may be eligible for ERTC. The ERTC could provide some relief if your business experienced increased costs or lost revenue due to a lack of necessary supplies.
ERTC Filing Supply Chain Documentation
The following is what you need to document supply chain disruptions for your ERTC claim:
- Agreements or orders that were postponed or terminated.
- Correspondence with suppliers about interruptions.
- Accounting records that show escalated costs or lost income as a result of these interruptions.
By being meticulous in your record-keeping, you’re creating a compelling argument for your ERTC application. Moreover, this data can also be beneficial for future strategizing and hazard control.
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Orders for Remote Work
One of the most drastic changes for many businesses has been the enforced shift to remote work. If government orders forced you to adapt to a remote work model, this operational change could impact your ERTC eligibility.
Businesses Mandated to Work Remotely May Qualify for ERTC
If your business was forced to adapt to remote work, you may have had to spend money to make that possible. If you provided your employees with the necessary technology, support, and resources to work from home, these costs could be considered qualified wages for the ERTC.
Determining Eligible Wages for Telecommuting Staff
When determining eligible wages for telecommuting staff, you need to keep track of the expenses associated with remote work. This includes the cost of computers, software, and any other equipment you provided to your staff to allow them to work from home. Keep detailed records of these expenses, as they will be crucial when you file your claim.
Keep in mind that the ERTC was designed to help businesses such as yours keep your workforce together. By knowing and using the eligibility requirements, you can claim the financial assistance you need to keep thriving in a world after the pandemic. Now, let’s tackle some frequently asked questions you might have.
Common Questions
It’s normal to have questions about tax credits, and the ERTC is no exception. It’s a complex topic. Here are some answers to the questions we hear most often to help you better understand.
What Happens If My Business Was Bigger in 2019 Than It Was in 2020?
Even if your business was larger in 2019 and has since downsized in 2020, you might still be able to qualify for the ERTC. The IRS uses the average number of full-time employees in 2019 to determine your business size for ERTC qualification. If you’ve downsized your workforce since then, your 2020 numbers are what count.
Am I Still Eligible for the ERTC If I Have Already Filed My Tax Returns?
Yes, you are still eligible for the ERTC even if you’ve already filed your tax returns. You’ll need to file an amended return to claim the credit. This process can be complex, so it’s often beneficial to seek professional help to ensure you’re getting the maximum credit you’re entitled to.
How Does 2020 and 2021 ERTC Eligibility Differ?
As previously noted, the main differences between 2020 and 2021 ERTC eligibility are the percentage of eligible wages covered and the level of gross receipts decline. In 2020, up to 50% of eligible wages were covered, compared to 70% in 2021. Additionally, the threshold for a significant decline in gross receipts was 50% in 2020 and 20% in 2021.
How Can I Show That My Business Was Subject to Capacity Restrictions?
In order to show that your business was subject to capacity restrictions, you will need to collect and provide official government orders that required the restrictions, as well as your own records that demonstrate a decrease in customer numbers or operating hours. Financial documents and sales reports that show the effect on your business will also be very important.
Can Exceptions Be Made for Vendor Restrictions Regarding ERTC Qualification?
Indeed, exceptions can be made. If you experienced vendor restrictions that were beyond your control and greatly impacted your business operations, you may still be eligible for the ERTC. Make sure to document the situation thoroughly, highlighting how the restrictions hindered your business activities.
What Supply Chain Interruptions Count Towards ERTC?
Any supply chain interruptions that impacted your ability to deliver goods or services can be taken into account. This could be anything from delayed shipments to complete stoppages that prevented you from completing customer orders. Be sure to keep a record of all such incidents to back up your claim.
What’s the Best Way to Document and Calculate Remote Worker Wages?
When it comes to documenting remote worker wages, you’ll want to keep a record of all expenses related to facilitating remote work. This could include technology costs, any home office allowances given, and other similar expenses. It’s crucial to have a reliable and consistent system for keeping track of these costs.
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Can I Still Qualify for ERTC if I Received a PPP Loan?
At first, any business that got a Paycheck Protection Program (PPP) loan could not qualify for the ERTC. However, this changed with the Consolidated Appropriations Act of 2021. Now, even if you got a PPP loan, you can still qualify for the ERTC. However, you can’t use the same wages to qualify for both programs.
Deciphering the ERTC may feel like a daunting task, but it’s an investment that can pay off. The monetary relief from this credit can assist you in maneuvering through the post-pandemic economy and set your business up for success. If you’re prepared to apply or require further assistance, don’t hesitate to contact a tax professional or utilize the resources at your disposal. Keep in mind, the secret is to take action immediately to maximize the benefits of the ERTC.
Let’s answer some of the frequent questions you might have as a mid-sized business owner about the ERTC:
What Happens If My Business Was Larger in 2019 Than in 2020?
Keep in mind that ERTC eligibility is determined by your business’s operations in the relevant calendar year. So if your business was larger in 2019 but had to downsize in 2020, the IRS will use your 2020 employee count to determine if you qualify for the tax credit. This is a silver lining for businesses that had to make the difficult decision to lay off employees because of the pandemic.
Is It Possible to Claim the ERTC Even After Filing My Tax Returns?
Indeed, it is. If you’ve already submitted your tax returns and then find out you’re eligible for the ERTC, you can adjust your tax filings to claim the credit. This is a refundable tax credit, which means you could receive a cash refund, so it’s certainly worth the effort to revise your returns.
How Have ERTC Eligibility Requirements Changed Between 2020 and 2021?
There were significant improvements to the ERTC in 2021, which is excellent news for companies. The credit was previously 50% of eligible wages in 2020, with a limit of $5,000 per employee for the year. In 2021, the credit was increased to 70% of eligible wages, and the limit was raised to $7,000 per employee per quarter. This translates to potentially greater financial assistance for your company.
What Kind of Evidence Do I Need to Show My Business Had Capacity Restrictions?
It’s all about the paperwork. To show capacity restrictions, keep a record of all government orders that impacted your operations and document how they affected your business. This could be sales data, customer counts, or any other metrics that show the restrictions’ impact on your business’s profits.
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Do Vendor Restrictions for ERTC Qualification Have Exceptions?
Indeed, they do. If government-mandated shutdowns or delays impacted your vendors and, as a result, your supply chain, this could influence your ERTC eligibility. Make sure to keep a record of any communication with your vendors regarding the disruptions and how they affected your business operations.
What Types of Supply Chain Disruptions Qualify for ERTC?
Any major interruptions to your supply chain that affected your business operations could potentially qualify for the ERTC. This could include delays, increased costs, or the inability to obtain necessary materials or products. Be sure to maintain thorough documentation of these disruptions and their impact on your business.
For instance, a manufacturing company that couldn’t obtain necessary parts due to a supplier going out of business could be eligible for the ERTC. They could prove this by providing evidence of canceled orders, increased costs from finding alternative suppliers, or a timeline showing how the disruption affected their production.
How Do You Document and Calculate Wages for Remote Workers?
If your business had to switch to remote work, it’s crucial to keep track of all costs related to this change. This includes purchases of technology, software subscriptions, and any other expenses needed to allow your employees to work remotely. These costs might be eligible as wages for the ERTC.
Can I Still Qualify for ERTC if I Got a PPP Loan?
In the beginning, companies that got a Paycheck Protection Program (PPP) loan weren’t able to qualify for the ERTC. But a law that was passed in December 2020 changed that. Now, even if you got a PPP loan, you can still get the ERTC. However, you can’t claim the same wages for both programs.
Wrapping up, the ERTC is a great chance for mid-sized businesses to recover some of the financial hits they took during the pandemic. Understanding what qualifies you, documenting the changes in your business, and acting now can give you the financial support you need to keep your business afloat and help it grow in the economy after the pandemic. If you think your business is eligible for the ERTC or you need help with your claim, don’t wait to Apply Now for expert help. This could be the step that stabilizes your business and ensures a better future.