Retailers Address ERTC Challenges with Seasonal Fluctuations

November 18, 2023
Dayes Law Firm

If you own a retail business, you’re accustomed to the ups and downs of seasonal sales. However, when the COVID-19 pandemic hit, you likely weren’t as prepared for the unpredictable drop in sales in 2020 or 2021. The Employee Retention Tax Credit offered relief to many businesses, but filing for the ERTC for seasonal workers comes with unique challenges.

The ERTC recovery team at Dayes Law Firm can help clarify this issue and more.

How Do Retailers Qualify For the ERTC?

Retailers can qualify for the ERTC by passing one of two tests:

  • The gross receipts test
  • The suspension of operations test

The gross receipts test requires you to have seen a significant decline in revenue in 2020 or 2021. The IRS defines this as a 50% decline in 2020 or a 20% decline in 2021. When calculating this decline, use the corresponding quarters from 2019.

If you don’t qualify through the gross receipts test, you may qualify through the suspension of operations test. This test requires you to have shut down operations partially or fully in response to a government order. Note that the shutdown had to have been the direct result of a mandate, not following CDC guidelines. 

To file the ERTC, amend your Form 941 tax return with Form 941-X. You can claim 50% of wages paid to employees during qualifying quarters up to $10,000 per employee for 2020 and 70% of the same for 2021. 

How Do Seasonal Sale Fluctuations Impact the ERTC?

Meeting the above eligibility requirements can be difficult for a retailer facing seasonal sales fluctuations. Some businesses can maintain a steady revenue stream all year, but retailers have a more distinctive structure. How does this impact your ability to collect the ERTC for seasonal workers? 

Employee Retention

When sales fluctuate, so does your number of employees. In addition to your typical full-time employees, you might hire seasonal workers for high-sales periods like the holidays. You can still claim these employees’ wages for the ERTC.

However, this might complicate defining the size of your business. The IRS defines small businesses as those with 100 or fewer employees in 2020 or 500 or fewer in 2021. Small businesses can claim all employee wages and healthcare benefits for the ERTC.

However, businesses that exceed 100 employees for 2020 or 500 for 2021 can only claim qualified wages paid to each full-time employee who couldn’t work at that time. Your fluctuation of employees as a retailer may impact this. However, keeping detailed and organized records can help you overcome these challenges.

Sales Fluctuations 

Sales fluctuations are typical for a retailer, but how do they impact your ERTC eligibility? If your sales increase significantly in one quarter, can you still qualify using the gross receipts test?

If a boost in sales due to seasonal fluctuations makes you ineligible for the ERC one quarter, remember that you may still be eligible for another. Additionally, since you are comparing a decline in revenue to your 2019 quarters, there may still be enough of a decline to qualify for that quarter. Even during the peak holiday season in 2021, you likely saw more revenue in a pre-COVID world. 

Carefully evaluate your quarters separately, and contact a legal professional if you need additional help.

Address ERTC Challenges With Qualified ERTC Attorneys

Are you still worried about ERTC challenges? Our team at Dayes Law Firm has your back. 

Every business comes with ERTC challenges. We’ve helped hundreds of businesses overcome them and successfully claim the credit for seasonal workers and other employees, and your business could be next.

Call Dayes Law Firm at 866-505-9860 to schedule a free consultation today.