ERC Revenue Reduction in 2023: Best Tool to Claim Tax Credits
When the US Congress initially proposed ERC, there were many concerns about its eligibility. Companies had to demonstrate that the pandemic had severely harmed them to be qualified to file an ERC claim.
One of the primary requirements for ERC eligibility criteria was that firms prove a 50% or greater decrease in revenue to file an ERC claim for 2020.
Thankfully, things began to look up for the impacted businesses when the Consolidated Appropriations Act of 2021 relieved firms by modifying eligibility rules and expediting the application process.
However, even after simplifying the application process and changes in the eligibility criteria, there is still a lot of confusion surrounding ERC, which can keep eligible firms from getting the financial relief they need to survive and get back on their feet.
Even though your ERC claim will get accepted still depends on factors like disruptions in the supply chains, partial or complete business shutdowns, etc. Revenue reduction is also one major factor that most businesses get wrong.
Here is a comprehensive look at everything businesses need to know about how revenue reduction impacts your ERC eligibility.
How Does Revenue Reduction Impact Your ERC Claim?
ERC revenue reduction is the best and most effective way to demonstrate your qualification apart from other factors like shutdowns, supply chain disruptions, etc.
Revenue reduction is the ERC eligibility condition that most businesses are aware of. Other criteria include partial or total shutdowns, etc.
Given that the pandemic started at the beginning of the second half of 2020, a business had to suffer at least a 50 percent decline in gross revenue at a minimum of one quarter during the second, third, and fourth quarters of 2020.
The qualification expires whenever the revenue drop in 2020 comes back to 80% of the levels in 2019. However, beginning in 2021, with the ERC program changes, you may be eligible for an ERC claim if a business observed a 20% decrease in gross revenue for every quarter one, two, and three of the corresponding quarter of 2019.
One misconception that most businesses have is that they believe they can only apply for an ERC claim if they have experienced a revenue reduction.
However, a business that did not experience revenue reduction can also apply for an ERC claim.
Your company may also be eligible if it has gone through a complete or partial shutdown. This eligibility requirement includes a suspension assessment, which is used to see if a business’s operations were terminated in whole or part due to a government order due to the pandemic.
Even if the shutdown decision wasn’t communicated to you personally, you would be eligible to apply for an ERC revenue reduction claim if you could prove that it negatively impacted your business operations.
For example, makeup artists used to gain most of their profits by doing actors’ makeup, but they can no longer profit to make the forced closures of film shootings and public events.
When comparing the gross revenues for your company in the year before the suspension, the collective effects of the partial or complete suspensions must be a minimum of 10%. A company may also be eligible for ERC if there were interruptions in the supply chain during the pandemic.
If a business depends on suppliers and vendors and faces disruptions in the supply chain during the pandemic, it may be eligible to apply for ERC. Keep in mind that the eligibility criteria require the supply chain disruption to be a consequence of suspension from a government agency.
For instance, construction companies unable to receive cement due to the shutdown and wait time at ports or restaurants that could not access specific supplies like fruit, paper cups, coffee, or meat could qualify for an ERC claim.
Whether your business gained revenue or lost it, such supply chain disruptions make you eligible to apply for an ERC claim.
Federal Tax Credits ERC Experts Can Answer All Your Questions about the Employee Retention Credit
Understanding if your business is eligible to apply for an ERC claim can be challenging; this is where FTCO ERC come in.
Federal Tax Credits ERC can help answer any of your questions regarding your business’s eligibility for ERC while considering factors like partial or complete shutdowns, etc.
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Revenue reduction is still one of the most prevalent ways to get ERC claims accepted, so if you have any further questions about ERC revenue reduction, fill out the intake form to determine if your business is eligible for ERC or give us a call at 360-641-7709 to talk to our experts now!