How Does the ERTC Apply to Businesses with New Owners
Business owners have an endless list of financial tasks: payroll, tax returns, and calculating revenue. These tasks only became harder when COVID-19 hit.
The ERTC has helped businesses stay afloat and recover since March 2020. Can businesses still qualify for the ERTC with a new owner? Here is information for new owners who may not know the rules regarding transfers of ownership and the ERTC.
What Is the ERTC?
The Employee Retention Credit (ERTC) is a refundable tax credit businesses can claim for keeping employees on their payroll during 2020 and 2021.
Qualifying businesses, including charities and other tax-exempt organizations, can claim up to 50% of employee wages at $10,000 per employee for 2020, and 70% of employee wages at $10,000 per employee for 2021.
Employers can retroactively file for the ERTC by amending their original Form 941 with Form 941-X. If you recently acquired a business through a stock sale, you can still submit these forms to claim the ERTC for qualifying quarters in 2020 and 2021, even if you were not the business owner at that point.
There are various reasons to transfer business ownership and even more avenues to take. The type of transfer depends on the business structure, partners, and assets.
For partnerships and limited liability companies (LLCs), transferring ownership involves reapportioning percentages of ownership. Another way to transfer or acquire a business is through a gift. If you’re the beneficiary of a business in the owner’s will, the transfer takes place upon the owner’s death.
Business ownership transfers can also occur through mergers, where an existing business takes control of another by buying the majority of its shares.
You can transfer ownership of corporations (S-Corps or C-Corps) through company shares, but this comes with unique tax liabilities.
The Impact of Business Ownership Changes on the ERTC
Regardless of the way you acquired a business, you can still claim the ERTC as a new owner as long as the employer identification number (EIN) did not change, even if you were not the business owner during the qualifying periods of 2020 and 2021.
The type of transaction will determine which periods you can claim the ERTC for. If you acquired a business through a stock sale, the EIN remains the same. Therefore, you can claim the ERTC for periods before you took ownership.
If you bought the assets of a business, there is a change in EIN, so you can only claim the ERTC for periods you owned the business.
Review Your Business’s 2020 and 2021 Gross Receipts
The ERTC is available to businesses that:
- Saw a significant decline in gross receipts
- Had to suspend regular operations due to a government order
- Are recovery startup businesses
For the gross receipts eligibility requirement, your business must have:
- Seen a 50% loss in revenue in 2020 when comparing the same quarters to 2019
- Seen a 20% loss in revenue in 2021 when comparing the same quarters to 2019
When you acquire a business in 2020 or later, you can still compare those quarters to 2019 to determine eligibility, even though you weren’t affiliated with the business yet.
Filing for the ERTC? Contact Dayes Law Firm
When there is a transfer of ownership, it can be difficult to determine how your business qualifies for the ERTC as a new owner. At Dayes Law Firm, our team of tax professionals can help you through the process. Contact us at 800-503-2000 for a free consultation.