The Employee Retention Credit is the last of the pandemic stimulus money still available. It’s proven to be a lifesaver for businesses, offering a fully refundable tax credit of up to $26,000 per employee. Of course, qualification is key.

As the last remaining pandemic stimulus money available, qualifying for the ERC is crucial for businesses seeking financial relief.

There are two primary ways for an employer to be eligible:

  1. The employer experienced a significant decline in revenue.
  2. The employer experienced a full or partial shutdown of operations due to a governmental order limiting commerce, travel, or group meetings due to COVID-19.

While determining revenue decline involves simple calculations, the second avenue introduces complexity and ambiguity, making it a more challenging route to navigate. Let’s explore the core components of full or partial shutdown.

The “Suspension Test”

To assess eligibility, the IRS established a suspension test, evaluating whether an employer experienced hardship based on two critical components:

  1. It is subject to a governmental order in effect, and
  2. The order has more than a nominal impact on its business operations, either due to suspending them or requiring modifications to them.

Navigating the suspension test is not always straightforward. The IRS has addressed ambiguous areas to provide clarity to businesses. For example:

  • Your business was considered essential throughout the pandemic and wasn’t subject to shutdown orders, but supplier shutdowns impacted your operations.
  • Your businss was required to scale back on hours or scale of operations.
  • Your business operated in multiple jurisdictions with varying degrees of shutdowns based on location.

Once you can determine whether you experienced a shutdown, the IRS wants to confirm you were affected by more than 10%. This is evaluated through the effect test.

To pass this test, a business must demonstrate that the suspended portion of its operations accounted for more than 10% of the total operations, or that modifications made to the company due to governmental orders resulted in greater than a 10% impact on its ability to provide goods or services to customers. For example, if a restaurant had to limit occupancy to 50% due to a governmental order and could only seat guests in every other booth, or if a gym had to offer only one-on-one personal training instead of group classes, these businesses would pass the effect test.

The Employee Retention Credit (ERC) presents a significant opportunity for businesses to access much-needed financial relief. Don’t leave money on the table. You may qualify for the ERC and not even realize it. Let the experts at Miami CFO review your situation to determine your eligibility and maximize your benefits. Schedule a meeting with us today by clicking on this link: