There is a lot of misinformation about the Employee Retention Credit, especially as it relates to businesses qualifying who had quarter vs quarter revenue increases in 2020 and 2021 compared to 2019.
The revenue test to obtain ERC works like this:
Test #1: A 50% revenue decrease in 2020 quarters vs 2019 quarters e.g. Q2 2020 vs Q2 2019
Test #2: A 20% revenue decrease in 2021 quarters vs 2019 quarters e.g. Q2 2021 vs Q2 2019
But even if your business does not pass either of these revenue tests, you can still qualify for ERC. An overall revenue decrease in 2020 or 2021 is the easy way to qualify for ERC. The harder way, but still in accordance with IRS guidelines, is to show that government shutdown orders had a significant impact on a portion of your business.
As an example lets look at a restaurant who had a 15% overall revenue increase in 2020 as compared to 2019. The restaurant had quarter over quarter revenues increases in all 2020 quarters compared to 2019.
At first glance this restaurant would not qualify for ERC since the business would have to show a 50% revenue decline in a quarter to quarter comparison of 2020 vs 2019. But another way to qualify would be to show that a portion of this business did have a revenue decline.
Let’s say that the restaurant did an advertising campaign promoting their take out business, and as a result was able to increase revenue by 15% for their business overall. But because of shutdown orders this restaurant could not have customers inside the restaurant. In this case the sit down portion of their business did have a significant decline in revenue, which would qualify this restaurant for ERC, even though the business had a 15% increase in revenue overall!
This is actually just one example of how a business who saw a revenue increase for 2020 or 2021 could still qualify for ERC. A business who had increased revenue in 2020 and 2021 may qualify for ERC if they experienced any of the following business disruptions:
- Partial or Full suspension of your operations.
- Supply chain issues with equipment, supplies or vendors.
- Inability of suppliers to make critical deliveries in a timely manner.
- Restrictions or reduction of services offered.
- No travel, trade shows, group meetings.
- Limited or delayed access to business equipment or supplies.
- Operating with limited hours or reduced labor capacity.
- Inability to visit client job sites.
- Disruption within a specific business division or department business.
Any of these things may qualify your business for ERC. An ERC Expert typically spends 100 - 200 hours going over all of the relevant information to determine "how" and "why" you qualify for ERC. Contact an ERC Expert from CLRA Group to find out how you may be able to qualify.