The Employee Retention Tax Credit (ERTC) is a tax credit that many small and medium-sized businesses (SMBs) can claim if they stayed open and were affected by government regulations during the height of the pandemic. But what about the ERTC for businesses that are part of a controlled group, such as a parent company with one or more subsidiaries?
What Is the ERTC?
The ERTC is a tax credit to refund qualified wages paid on a business tax return filed for an eligible quarter in 2020 or 2021. To qualify for the ERTC, your company must have experienced a revenue decline or fully or partially shut down in response to government mandates.
Your company might be able to seek a refund of up to $5,000 per full-time employee for qualified wages paid in 2020. Additionally, you might be eligible for a refund of up to $7,000 per full-time employee per quarter of 2021, excluding the fourth quarter. If your company is eligible for the maximum refund, that could be up to $26,000 per employee.
Recovery startup businesses have different qualifications and refund limits. A recovery startup business is one that opened on February 15, 2020, or later, earned less than $1 million in revenue, and has at least one full-time employee outside of majority owners and certain family members. Recovery startup businesses might be able to claim up to $100,000 for Q3 and Q4 of 2021.
How Do Aggregation Rules Affect a Company’s Ability To Claim the ERTC?
If your company is part of a group, claiming the ERTC for businesses in that group falls to the company listed as the “single employer.” If your company is the single employer under aggregate rules, you must combine employee and wage information from all companies in the group to determine eligibility for the ERTC.
The primary concern for employer aggregates is whether the total employee count and other qualifying measures exceed the maximums allowed for ERTC eligibility. In 2020, the maximum number of employees is 100, while the maximum for 2021 is 500.
What Company Relationships Qualify Under Aggregation Rules?
Special aggregation rules apply to specific group structures. Company structures that must follow aggregate rules include:
- Parent-subsidiary groups
- Brother-sister groups
- Combined groups of corporations
If your company falls under any of these categories, it follows aggregation rules when filing its quarterly tax return or applying for the ERTC.
Qualifying for the ERTC as an Aggregate Group
If your aggregate group saw a decline in revenue or experienced a full or partial shutdown or change in operations because of a government mandate, your company might qualify to apply for the ERTC. In that case, your company must have:
- Been fully or partially shut down by a federal, state, or local government mandate to restrict travel or occupancy OR
- Experienced a 50% or greater decline in gross receipts in 2020 compared to the same quarter in 2019 OR
- Experienced a 20% or greater decline in gross receipts in 2021 compared to the same quarter in 2019
If your aggregate group consists of recovery startup businesses, the qualifications might differ from those for established businesses. Consult with an ERTC tax professional about your group’s eligibility and qualified wages paid.
Contact Dayes Law Firm To Speak With a Business Tax Attorney
The ERTC for businesses in aggregate groups is a complex topic. For help understanding whether your group qualifies, reach out to Dayes Law Firm today. Call now at (866) 567-4510 or contact us online to schedule a free consultation with a knowledgeable business tax attorney.