How does a Business Qualify for ERC?
ERC comes from the Cares Act of 2020. Originally, a business could qualify for PPP, the Payroll Protection Program OR ERC, the Employee Retention Credit, not both. In order to qualify for ERC, the business had to have a specific revenue decrease. In January of 2021, Biden and the new administration made significant changes to the legislation allowing business to receive both PPP & ERC and offering TWO WAYS to Qualify:
- Decline in gross revenue. Each quarter is independently measured against the comparable quarter in 2019.
- 50% decline in 2020 (Q2,3,4)
- 20% decline in 2021 (Q1,2,3)
- Full or Partial Suspension of Operations
- The second way to qualify is if your business experienced a full or partial suspension of operations. A partial suspension is defined by making modifications to a business operation because of government orders resulting in a "nominal effect" to the business operations.
- IRS Notice 2021 - Page 39
"The mere fact that an employer must make a modification to business operations due to a governmental order does not result in a partial suspension unless the modification has more than a nominal effect on the employer’s business operations. Whether a modification required by a governmental order has more than a nominal effect on the business operations is based on the facts and circumstances. A governmental order that results in a reduction in an employer’s ability to provide goods or services in the normal course of the employer’s business of not less than 10 percent will be deemed to have more than a nominal effect on the employer’s business operations."