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What if a Business Changes in Relation to Claiming the ERTC?
Did you know that the Employee Retention Tax Credit (ERTC) gives businesses a tax credit of up to $26,000 per employee? These funds are issued as a refund and don’t have to be paid back.
Before you claim your piece of the pie, it’s important to confirm your business’s eligibility and determine how much money in tax credits you can receive. There are a lot of rules that influence the amount of the tax credit, especially if your business changed services to adapt to the COVID-19 pandemic.
This article provides an overview of how changing services can affect your ERTC eligibility.
A Note About ERTC Eligibility
Most businesses around during the pandemic can qualify for the Employee Retention Credit (ERC) because they only have to meet one of the following two requirements:
- Experience a decline in gross receipts by 50% in 2020 and 20% in 2021 compared to the same quarter in 2019. Eligibility is determined quarterly, so you can claim for one, multiple, or all quarters.
- Experience a significant change in operations due to a government mandate. There are several examples of what constitutes a change in operations, though it’s usually a full or partial suspension of operations.
As long as a business falls under either one of these requirements, it can qualify for the Employee Retention Tax Credit (ERTC).
How Businesses May Have Changed Services
A change in services means different things to different businesses. For example, it could mean a reduction in operating hours because the government mandated a closure. Alternatively, it could mean changing an entire product line or service offering to adapt to varying demands.
Examples of changes in services include the following:
- Reducing operating hours or the number of days the business is open
- Modifying a product or service (an example is a dine-in-only restaurant offering takeout)
- Offering online or remote services, like fitness classes or remote auto repair
- Revamping branding or value propositions to adjust to a different lifestyle (transitioning from business casual fashion to loungewear, for example)
- Expanding or reducing products or inventory to meet evolving customer needs
- Adding health and safety measures to comply with government regulations and customer preferences
- Adopting new technology to accommodate remote service needs and online shopping habits
How Changing Services Affects Eligibility
Generally speaking, a change in operations by itself can allow businesses to claim ERTC funds. However, the rules are constantly shifting, so we recommend speaking to the tax attorneys at Dayes Law Firm to confirm eligibility.
If your change in services related to your business does not meet the threshold to qualify for the tax credit, you can still potentially be eligible for the credit if you experienced a decline in gross receipts for one or more quarters in 2020 and 2021.
Another potential impact on eligibility is related to the number of employees on the payroll. For example, if your business had more than 500 employees before COVID-19 and you reduced staff to a number less than that, you could be eligible for additional tax credits as a “small employer.”
There are different rules for eligible employers based on the size of their staff, so having documentation of headcount for payroll purposes will help you determine your tax credit.
Contact an Experienced Legal Tax Team for Help Claiming the ERTC
The experienced ERTC attorneys at Dayes Law Firm can provide business owners with guidance about filing an ERTC claim. We will review your operations for each of the eligible quarters to help you determine the amount of ERTC funds you can claim. For more information or to schedule a free consultation, contact us at 866-684-8114.