Can I Still Qualify for the ERC If My Business Didn't Have a Drop in Gross Revenue?

The Employee Retention Credit (ERC) is a tax credit designed to encourage businesses to retain employees during the COVID-19 pandemic. Many businesses mistakenly believe that they do not qualify for the ERC if they have not experienced a drop in gross revenue. However, there are other factors that determine eligibility, such as a significant decline in business activity or the suspension of operations due to government orders. Therefore, businesses need to carefully review the ERC qualification requirements to determine their eligibility for the credit.

To determine if a business is eligible for the ERC, they need to consider the following factors:

1. Impact of COVID-19 on the business: Businesses must demonstrate that they were either partially or fully suspended due to a government order related to COVID-19, or they experienced a significant decline in gross receipts (i.e., a reduction of 50% or more) in any quarter of 2020 or 2021 compared to the same quarter in the prior year.
2. Number of employees: Businesses with 500 or fewer employees are generally eligible for the ERC, although there are special rules for businesses with more than 500 employees.
3. Business operations were fully or partially suspended due to a government order related to COVID-19: Businesses that were forced to shut down or limit operations due to government orders related to COVID-19 may be eligible for the ERC. This includes businesses that had to close because of stay-at-home orders or social distancing requirements.
4. Relevant time period: The ERC can be claimed for wages paid between March 12, 2020, and December 31, 2020, for up to 50% of qualified wages paid to employees, up to a maximum credit of $5,000 per employee. For wages paid between January 1, 2021, and December 31, 2021, businesses can claim the ERC for up to 70% of qualified wages paid to employees, up to a maximum credit of $28,000 per employee.
5. Decline in gross receipts: Businesses that experienced a significant decline in gross receipts due to COVID-19 may be eligible for the ERC. The threshold for the decline in gross receipts has changed over time, so businesses should consult the most recent guidance from the IRS to determine the current threshold.

To claim the ERC, businesses need to complete Form 941, the employer's quarterly federal tax return, and include the credit on that form. The process for claiming the ERC involves calculating the credit amount, claiming it on Form 941, reducing payroll tax deposits by the eligible amount, and keeping appropriate records to support the claim. Documentation that businesses may need to provide to claim the ERC includes records of the number of full-time employees and their wages, documentation showing that the business was fully or partially suspended due to a government order related to COVID-19, and documentation showing that the business experienced a significant decline in gross receipts.

In conclusion, businesses should not assume that they are not eligible for the ERC just because they did not experience a drop in gross revenue. There are other factors that determine eligibility, and businesses should carefully review the ERC qualification requirements to determine if they are eligible for the credit. Consulting with a tax professional can also help businesses ensure that they are eligible for the ERC and that they are maximizing their credit amount, as the rules surrounding the ERC can be complex.

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