Drop in Gross Profit Reduced: Can Your Business Claim ERTC?
A drop in the ERTC gross profit requirement makes many more businesses eligible to qualify for the ERTC. But what is the ERTC, and how do other factors like staying open throughout the pandemic and PPP loans affect your eligibility?
What’s Required to Qualify for the ERTC?
The ERTC is a tax credit that refunds a portion of your taxes for wages paid to employees during the pandemic. You can receive a maximum credit of $5,000 per employee for the 2020 tax year, and up to $7,000 per employee per quarter for the first three quarters of 2021. So the amount of the credit you receive can be as high as $26,000 per employee.
In order to qualify to receive the tax credit via your employment tax return, you must meet specific eligibility requirements for the time period when you are attempting to claim the credit. The general requirements include:
- Owning and operating a for-profit business or a tax-exempt organization
- Having at least one W-2 employee
- Fully or partially closing or reducing your services by government order during COVID-19, and/or experiencing a decrease in gross receipts from the same calendar quarter in 2019
Recovery startup businesses may also qualify for a $50,000 credit for the last quarter of 2021.
What if Your Gross Revenue Never Dropped?
To qualify for the ERTC due to a decrease in gross revenue, your 2020 gross receipts between March 13, 2020, and December 31, 2020, should have been 50% or less than your gross receipts for the corresponding quarter in 2019. For 2021, the gross receipts between January 1, 2021, and September 30, 2021, should have been at least 20% less than the corresponding quarter in 2019.
If you opened a business after February 15, 2020, you can use your 2020 earnings to determine if you qualify for the ERTC when filing your 2021 employment tax return with Form 941-X.
Even if your gross revenue didn’t decrease, you may still qualify for the ERTC if government mandates, supply chain shortages, or changes in services to accommodate sanitation affected your business significantly during the pandemic.
For example, if your call center retained one-third of its staff and staggered employees at every third desk to stay open with consideration to social distancing, your business was still greatly affected by COVID-19. Other examples include restaurants that only offered delivery or outdoor dining, banks that switched to drive-through teller windows only, and several other businesses and industries.
What If You Stayed Open During the Pandemic?
Many essential businesses stayed open, as did certain sectors of larger businesses. With the recent drop in the ERTC gross profit requirement to 20% for the first three quarters of 2021, your business may now qualify for the ERTC based on a gross profit decrease.
Your business may also qualify based on other changes required in your industry, such as if you own an event venue where you had to stagger ticket sales or only host outdoor events to comply with social distancing.
What If You Received a PPP Loan?
You may be able to retroactively claim the ERTC, even if you received a PPP loan. New regulations from 2021 allow businesses that claim a PPP loan to qualify for the ERTC.
Call an Experienced ERTC Tax Law Firm
The recent drop in the ERTC gross profit requirement could make your business eligible to retroactively apply for the ERTC. For help with your ERTC eligibility, contact us at Dayes Law Firm in Phoenix, AZ. Call today at 800-503-2000 or contact us online to schedule your consultation.