ERC Eligibility for Businesses Under the Suspension Test

July 18, 2023
Dayes Law Firm

The COVID-19 pandemic impacted many businesses. The Employee Retention Credit (ERC) aimed to reduce this strain. An eligible employer may apply for the ERC if:

  • They experienced a significant drop in gross receipts
  • They pass the ERC suspension test

While the standards for gross receipts are relatively easy to understand, the suspension test may be more confusing. A qualified attorney can help you learn more about whether you qualify.

What is the ERC Suspension Test?

According to the ERC requirements, businesses that experienced full or partial suspension may be eligible for the program. The suspension test determines whether you meet those requirements by looking at the following:

  • Whether your business was affected by a governmental order
  • How heavily these mandates impacted your business

How Do You Qualify Under the Suspension Test?

Suppose you’ve determined your business had suspended operations. If so, you’ll need to consider two additional factors to pass the ERC suspension test.

Governmental Orders

If you want to apply for the ERC, you first must prove your business was affected by a governmental mandate related to the COVID-19 pandemic. Such mandates may include those specifying that all non-essential businesses had to shut down temporarily, that you were to reduce business hours, or that you needed to limit store capacity.

In addition, governmental orders could indirectly affect your business. For example, if a state’s government forced non-essential businesses to close, you may have struggled to find the supplies you needed.

Take note of the governmental order in question. Gather documents illustrating how it affected your business. The more information you have, the higher probability of a successful claim.

The Impact on Your Business

If your business experienced a full suspension — for example, you ceased operations since you owned a non-essential business — the impact is clear. Your business couldn’t operate at all, and so your business suffered. Experiencing a partial suspension, however, may make the situation more complicated.

Your business may have experienced a partial suspension if you had to limit operations, you closed down certain locations (but not others), or supplier shutdowns impacted your revenue. In these cases, you need to prove your business experienced a significant impact through one of two tests:

  • Size Test: If governmental mandates forced you to suspend a more-than-nominal portion of your business operations, you would use this test. To qualify, you’d need to show that shutting down that portion of your business reduced your gross receipts by more than 10% or that the hours of service performed by employees fell by 10%.
  • Effect Test: If you had to make modifications to your business operations, you would use the effect test. To qualify, you’d need to prove that business modifications reduced your ability to provide goods and services by 10% or more. In addition, if you had to close more than 10% of your business, you could qualify under the effect test.

Important Considerations for the Suspension Test

Not every business affected by government orders qualifies for the ERC. For example, if you were able to continue business operations remotely, you may not be eligible. In addition, even if you are eligible, you can only claim wages from the calendar quarters the governmental mandate applies to.

Reach Out to Dayes Law Firm PC To Determine Whether You’re Eligible for the ERC

Navigating the ERC suspension test can sometimes feel confusing. Partnering with a qualified attorney can make your situation a little easier.

At Dayes Law Firm PC, we can help you determine your eligibility and help you file a claim. Call (866) 257-1223 or fill out our contact form to request a free consultation.