Question 1

Who is Eligible to Claim the Employee Retention Credit (ERC)?

Accepted Answer

There are very specific eligibility requirements for claiming the ERC.
Eligible employers can claim the ERC on an original or amended employment tax return for qualified wages paid between March 13, 2020, and December 31, 2021. However, to be eligible, employers must have either:
Sustained a full or partial suspension of operations due to an order from an appropriate governmental authority limiting commerce, travel or group meetings because of COVID-19 during 2020 or the first three quarters of 2021, or
Experienced a significant decline in gross receipts during 2020 or a decline in gross receipts during the first three quarters of 2021, or
Qualified as a recovery startup business for the third or fourth quarters of 2021.
A self-employed individual who has employees and who otherwise meets the requirements to be an eligible employer may be eligible for the ERC based on qualified wages they paid to employees. Self-employed individuals can't include their own self-employment earnings or wages paid to related individuals when calculating the credit.
Employers in U.S. territories are eligible to claim ERC if they meet other eligibility requirements. For information about qualified wages paid by employers in U.S. territories, see Notice 2021-20, Section III.A, Question 4.

Question 2

What employers are not eligible employers?

Accepted Answer

You don't qualify for the ERC if you didn't operate a business or tax-exempt organization with employees.

Further, examples of employers or taxpayers that are not eligible to claim the ERC include:
Individual taxpayers who are not business owners
Employees
Retirees
Self-employed individuals who do not have employees
Household employers
Employers that didn't pay wages to employees during the qualifying time periods
Employers who experienced supply chain disruptions but did not experience a full or partial suspension of operations by a qualifying order
Government agencies

Question 3

How do I know the employer passes the gross receipts test?

Accepted Answer

You may qualify for ERC if your business or organization experienced a significant decline in gross receipts during 2020 or a decline in gross receipts during the first three quarters of 2021.
Generally, this test is met by comparing the gross receipts of the calendar quarter in which ERC is considered to the gross receipts of the same calendar quarter in 2019.

For 2020, you begin qualifying in the quarter when your gross receipts are less than 50% of the gross receipts for the same quarter in 2019. You no longer qualify in the quarter after the quarter in which your gross receipts are more than 80% of the same quarter in 2019.

For example: Your gross receipts were $100 in each quarter of 2019. They were $45 in the second quarter of 2020, $85 in the third quarter and $75 in the fourth quarter. Under these facts, you would qualify for the second and third quarter but not the fourth. 
 
For 2021, the gross receipts for the quarter must be less than 80% of the gross receipts for the same quarter in 2019.
 
For calendar quarters in 2021, you can also use the alternative quarter election rule, which gives employers the ability to look at the prior calendar quarter and compare to the same calendar quarter in 2019 to determine whether there was a decline in gross receipts.

For example: Your gross receipts were $100 in each quarter of 2019. They were $75 in the first quarter of 2021 and $85 in the second quarter. Under these facts, you would qualify for the first quarter using the regular gross receipts test and for the second quarter using the alternative quarter election rule.

Be sure to keep thorough records and consider whether you need to coordinate with another part of your business, such as if you're part of an aggregated group. For more information about aggregation rules, see Notice 2021-20, Section III.B.

Question 4

What kind of governmental orders may qualify my organization?

Accepted Answer

To qualify for ERC, you need to have been subject to a qualifying government order related to COVID-19 that caused a full or partial suspension of your trade or business operations. The government order may be at the local, state or federal level.

Examples of governmental orders:

An order from the city's mayor stating that all non-essential businesses must close for a specified time period;
A state's emergency proclamation that residents must shelter in place for a specified period, except for essential workers;
An order from a local official imposing a curfew on residents that impacted the operating hours of your trade or business for a specified time period;
An order from a local health department mandating a workplace closure for cleaning and disinfecting.

Question 5

Is being subject to a governmental order enough to make me eligible for ERC?

Accepted Answer

No. You need to demonstrate that the government order was related to COVID-19 and that it resulted in your trade or business being fully or partially suspended.

Question 6

What does it mean for a governmental order to fully or partially suspend an organization?

Accepted Answer

Whether your business or organization was fully or partially suspended depends on your specific situation. For examples, see Notice 2021-20, Section III.D

Question 7

What is a recovery startup business?

Accepted Answer

A recovery startup business is a business or organization that began carrying on a trade or business after February 15, 2020, and had average annual gross receipts of $1 million or less for the three years preceding the quarter for which they are claiming the ERC.

Your business does not need to specifically relate to pandemic relief or recovery efforts to be eligible.
To be eligible as a recovery startup business, you can't be eligible for ERC under the full or partial suspension test or the gross receipts test. A recovery startup business can claim ERC only for the third and fourth quarters of 2021 and may claim a maximum of $50,000 of ERC per quarter.

You should consider whether you need to coordinate with another part of your business, such as if you're part of an aggregated group. For more information about aggregation rules, see Notice 2021-20, Section III.B. and Notice 2021-49, Section III.D.

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