Gross Receipt Exclusion Procedure to Qualify for the ERTC

August 1, 2023
Dayes Law Firm

If your business experienced a decline in gross receipts in 2020 and 2021, you may qualify to receive a refund under the Employee Retention Tax Credit (ERTC). If your business qualifies, you can claim a portion of the wage taxes you paid on your 2020 or 2021 business tax return. But how does the ERTC gross receipt exclusion work?

What Are Gross Receipts?

Gross receipts are all sources of a business’s income, including sales, royalties, fees, interest, dividends, commissions, rent, allowances, and more. Your business must report gross receipts on its tax returns each year (or each quarter if you file quarterly).

Gross receipts include the “total income” plus the “cost of products sold” on your business tax return. For sole proprietors, independent contractors, or self-employed individuals, the line is “gross income” rather than total income.

In your gross receipts, you should include:

  • Taxes collected, such as sales tax or other taxes to be remitted to a tax authority
  • Proceeds from sales or transactions between domestic and foreign partners and branches
  • Commission and fees collected by agents for a larger office, such as real estate agents, travel agents, and ad sales agents
  • Expenses such as subcontractor fees, investments, and payroll taxes

To understand gross receipts and how they affect your company’s tax obligations and your eligibility for the ERTC, you should contact an experienced tax professional. They will know if you qualify for the ERTC gross receipt exclusion.

Which Receipts Qualify for the ERTC?

Employers should exclude Shuttered Venue Operator Grant (SVOG) funds, Restaurant Revitalization Fund (RRF) grants, or Paycheck Protection Program (PPP) loan forgiveness in “Safe Harbor.”

Employers treated as a single employer under aggregation rules must utilize the same status for Safe Harbor — either all branches use Safe Harbor and exclude SVOG, RRF, and PPP, or all report these amounts. Your business will automatically elect to use Safe Harbor when you determine eligibility for the ERTC.

Your business must either claim Safe Harbor or include the relief funds in your gross receipt calculations for each eligible quarter. You must adjust any previous tax returns to make them match your selection if you choose the alternate reporting method.

Understanding tax laws, exemptions, and eligibility to claim certain tax credits is complex. Find a skilled business tax professional to review your business’s finances and file your tax return so you don’t miss any potential savings or refunds.

What Doesn’t Count Toward the ERTC?

Safe Harbor funds don’t count toward the ERTC. That includes SVOG, RRF, or PPP funds and loans. Additionally, all restaurants in operation for applicable periods in 2020 and 2021 automatically qualify for the ERTC, meaning that restaurant owners should exclude RRF funds and other Safe Harbor funds.

For information about other exclusions that could affect your ERTC eligibility, look for a business tax professional in your area who can explain what options are available.

The ERTC Exclusion for Tax Exempt Organizations

Gross receipts for tax-exempt organizations like non-profits include any income before calculating expenses. This can include fundraising sales and direct donations. If you lead a non-profit organization and need to learn more about the ERTC gross receipt exclusion and how it applies to your organization, contact an experienced business tax professional or attorney near you.

Contact an Experienced ERTC Law Firm 

For help understanding and applying the ERTC gross receipt exclusion on your 941-X Form, contact our knowledgeable business tax attorneys at the Dayes Law Firm in Phoenix, AZ. Call today at 800-503-2000 or contact us online to schedule a free consultation.