Businesses with Supply Chain Disruptions May Qualify for ERC

July 17, 2023
Dayes Law Firm

The Employee Retention Credit (ERC) aims to provide relief to business owners who experienced disruptions due to the COVID-19 pandemic. Originally, an eligible employer could apply for this tax credit only if they experienced a full or partial suspension or a significant decline in gross receipts.

However, these weren’t the only factors affecting business operations during the pandemic. Some businesses may have continued running but experienced a supply chain disruption that impacted their companies.

How does a supply chain disruption affect your ability to claim the ERC? Learn more with help from the attorneys at Dayes Law Firm PC.

How Supply Chain Disruptions Impact ERC Eligibility

Government mandated certain restrictions on travel, group meetings, and commerce. Some suppliers may have suspended operations in response to these limitations. Alternatively, the suppliers may have continued operating but experienced transportation restrictions.

As a business owner, you rely on having access to these suppliers to operate. If a key supplier shut down over government restrictions, you could be eligible for the ERC.

According to the IRS, you are eligible if:

  • Your primary supplier couldn’t deliver products because of a government restriction. For example, the government stated that non-essential businesses had to cease operations for a time, which could have forced your supplier to shut down.
  • You must not have been able to find an alternative supplier. Say, for example, all suppliers of certain materials had to shut down because of government restrictions. This would prevent you from finding another option to fill the void.
  • Your business must have experienced a significant impact because of this supply chain disruption. For example, suppose you predicted a significant revenue increase because of a new product. Your company didn’t see the expected increase since you no longer had the materials to make that product.

You must meet the requirements to qualify. In addition, a supply chain disruption in one quarter doesn’t necessarily mean you’ll be eligible for the ERC every quarter; you must examine your eligibility on a quarter-by-quarter basis.

Do You Need To Meet the Other Eligibility Requirements if You Experience a Supply Chain Disruption?

According to the ERC requirements, a business must meet one of the two following criteria to qualify:

  • It must have experienced full or partial suspension.
  • It must have experienced a significant decline in gross receipts.

For supply chain disruptions, these requirements are waived. Instead, a business must prove the supply chain interruption prevented them from achieving their predicted revenue for that quarter.

Suppose a company continued operations during the pandemic. Its revenue stayed relatively stable but was still below its predicted amount, which the owners expected to increase upon the introduction of a new product. If the company could produce documentation proving that supply chain disruption affected its predicted gains, it would qualify for the ERC.

Determine Eligibility with Help from the Attorneys at Dayes Law Firm PC

Many businesses want to take advantage of the ERC credit. If you experienced a supply chain disruption, you may be eligible.

At Dayes Law Firm PC, we’re ready to help you assess eligibility and determine your maximum credit. Our attorneys can help you learn more about how to claim this credit, assist with paperwork, and more. We’ll take the time to understand the factors that influenced your business and provide you with reliable advice.

Eligible employers can still claim the ERC credit. If you experienced a supply chain disruption during the COVID-19 pandemic, call (866) 257-1223 or fill out our contact form to request a free consultation. Learn more about the ERC today.