Can a Decline in Gross Receipts Qualify a Business for the ERTC?

The COVID-19 pandemic affected many businesses. The government implemented the Employee Retention Credit — otherwise known as the ERC or ERTC — to help combat this. You can claim a certain amount of credits for each employee in your company, helping reduce the strain of payroll taxes.

Many business owners may wonder whether they qualify. Can you apply if you experienced a decline in gross receipts? What counts as a gross receipt decline for the ERTC? 

How Do You Qualify for the ERC?

The ERC can be an incredibly useful tool, but many business owners may struggle to determine whether they qualify. If you want to apply for this tax credit, you’ll need to meet one of two qualifications:

1. Your business experienced either full or partial suspension of operations due to the COVID-19 pandemic.
2. You experienced a significant decline in gross receipts.

Should you qualify, you can claim credit based on how many employees you kept on your payroll. Your maximum credit varies depending on the year and the amount of qualified wages.

What Are Gross Receipts?

Your business earns money from a range of different sources. This may include the sale of products, services rendered to clients, and even investments or gifts. Gross receipts encompass all of this money minus any important expenditures.

Nonprofits are also eligible for the ERC credit. If you operate a non-profit, your gross receipts encompass donations, fundraisers, and other sources.

How Do You Calculate a Decline in Gross Receipts?

To qualify for the ERC, you must have experienced a “significant decline in gross receipts.”

You’ll want to pick a particular time frame to examine to calculate gross receipts. Pull up your records and add up any sales that occurred during that period. For cash-based systems, you only want to include any payments received during that period; for accrual-based systems, you only want to include services or products delivered during the same period. Your total would be your gross receipts.

The requirements for a gross receipt decline for the ERTC vary depending on the year. In 2020, you would have a significant decline in gross receipts if the total for one quarter was less than 50% of the same calendar quarter in 2019. In 2021, that percentage rose to 80%.

For 2021, you also have the option of using the previous calendar quarter for your gross receipt calculations. For example, say you wanted to determine whether you qualified for the second quarter of 2021. You could use the gross receipts of the first quarter and compare them against the first quarter of 2019. You’d be eligible for the second quarter if you meet the requirements.

Contact Dayes Law Firm To Find Out Whether You Qualify

The ERC can be an excellent way for companies to pursue relief. While the program has technically ended, eligible employers can still apply for the tax credit.

Are you uncertain whether you meet the requirements for gross receipt decline for the ERTC? Do you need help determining how to apply? If you’d like assistance, reach out to Dayes Law Firm.

At Dayes Law Firm, we can guide you through calculating your gross wages for each calendar quarter. We’ll help you assess the differences, explain qualification requirements, and assist with the application process. Call us at 800-503-2000 or fill out our contact form to request a free consultation with an attorney today. We’re prepared to provide you with guidance.