The Employee Retention Tax Credit (ERTC), also known as the Employee Retention Credit (ERC), is a credit businesses can claim on qualified wages paid during the pandemic in 2020 and the first three quarters of 2021. The ERTC for business aggregates applies to companies in controlled groups defined by the IRS under its aggregation rules.
How Does the IRS Define an Aggregate Group?
The IRS defines an aggregate group as a controlled group in certain business relationships, including:
- Parent-subsidiary companies. A common parent company owns 50% or more of stock or voting power over each subsidiary company.
- Brother-sister groups. Five or fewer people own 80% or more of each company and collectively hold 50% or more of the voting power for each company in the group.
- Combined groups of corporations. Any group of corporations that contains a mixture of parent-subsidiary and brother-sister groups in the larger organization is a combined group of corporations.
What Businesses Qualify for the ERTC?
Businesses that saw a decline in gross receipts or had to shut down or reduce operations in response to government mandates in qualifying quarters of 2020 and 2021 are eligible to claim the ERC. Companies that meet the criteria to claim the ERTC include:
- Businesses affected directly or indirectly by mandated full or partial shutdowns that limited travel, commerce, or occupancy, OR
- Businesses that experienced a 50% or greater decline in gross receipts in 2020 compared to the same quarter in 2019, OR
- Businesses that experienced a 20% or greater decline in gross receipts in the first three quarters of 2021 compared to the same quarter in 2019, OR
- Businesses that qualify as recovery startup businesses
For businesses in an aggregate group, the group is a single employer under aggregate rules. Any single business in the larger group may qualify, but the group as a whole must meet these requirements to be eligible.
What Factors Does an Aggregate Group Need To Consider for the ERC?
What factors does aggregation affect when considering whether the group can apply for the ERC? Considering the group as a whole can affect whether you qualify as a small business or large employer, as well as whether only some companies in the group meet the requirements for eligibility.
Size of the Aggregate Group
In 2020, small businesses were those with 100 or fewer full-time (or equivalent) employees. Small businesses could claim qualified wages for all employees, regardless of whether they provided services during the pandemic. Large businesses could only claim qualified wages paid to employees who did not provide services. In 2021, large employers were those with more than 500 employees.
Government Shutdowns of One or More Locations
If one or more members of the aggregate experienced a full or partial shutdown, the IRS considers the entire group subject to the mandate, regardless of jurisdiction.
Decline in Gross Receipts for the Group
The total decline in revenue for the aggregate must meet the requirements. If Companies A, B, and C are in a group, the collective revenue among the three companies must meet the 50% decline threshold for 2020 and the 20% decline threshold for 2021.
Contact Dayes Law Firm for More Information About the Employee Retention Tax Credit
The ERTC for business can help your business aggregate group receive a refund for payroll taxes paid during the pandemic. For help determining whether your group is eligible to claim the ERTC, reach out to Dayes Law Firm. Call (866) 567-4510 today or contact us online to schedule a free consultation with an experienced business tax attorney.