The pandemic might have been inconvenient for many families around the USA. Yet, it was especially disastrous for businesses struggling to stay afloat. In these times, the ERC tax credits that the US government had issued were one of the only life jackets they had to survive.
However, some businesses could not receive the ERC tax credits as they were found ineligible. The following sections can help you understand the ERC tax credit, eligibility, and common reasons for ineligibility.
What Are ERC Tax Credits?
The US government first introduced ERC tax credits during the pandemic. This was an effort to provide businesses with the financial assistance they needed to survive the pandemic. Businesses were encouraged to retain their employees despite losses due to partial or full suspension of business operations through the design of this credit.
Businesses could receive these credits only if they showed eligibility. For this, the IRS produced specific eligibility criteria as listed below;
1. Business Operations Affected by the Pandemic
For a business to qualify for the ERC tax credits in 2020, it had to face either a partial or full suspension of business operations. This should have been due to government orders related to the pandemic or a loss in gross receipts.
According to the IRS, you must fulfill one of the following conditions;
- Experience full/partial business operations shut down through pandemic-related government orders during 2020 or at least the first three quarters of 2021.
- It must have experienced a decline in gross receipts (specific amount determined by IRS) during the year 2020 (50% decrease) or the first three quarters of 2021 (20% decrease).
- The company must qualify as a recovery startup (terms and conditions apply) for the third or fourth quarters (2021).
Regardless of the above conditions, businesses must have paid qualified wages to claim ERC tax credits. If you want to learn more about the specific amounts for eligibility, visit the IRS website for in-depth guidance.
2. The Size of the Business
The ERC tax credits are also subject to change according to the business size. In 2020, the tax credit had stricter eligibility criteria for businesses with over 100 employees. For example, these businesses could only receive credits for employees who weren’t providing services but were still on payroll during the suspension of business operations.
Recently, the relaxation of this restriction allowed more businesses to apply for ERC tax credits.
3. The Restrictions on Qualified Wages
Perhaps the trickiest and most confusing part of the ERC is the calculation of qualified wages. In 2020, the consideration of qualified wages was limited to wages paid to employees who weren’t working. However, in 2021 and 2022, new legislation expanded this definition and included employees who were also working.
It is getting much easier to gain eligibility. We advise these businesses to apply for the ERC tax credits through a professional lawyer who can take them through the confusing paperwork.
Why Did My Business Not Qualify for ERC Tax Credits in 2020?
The ERC tax credit policies may change over time depending on legislative changes and further additions and amendments. This eligibility criterion can get confusing. Here are some reasons your business may not have qualified for ERC tax credits in 2020;
1. The Size of Your Business
Your business may not have received ERC tax credits in 2020 due to the stricter policies regarding the business size. The release of the amended Form 941 might have taken many more businesses under the ERC wing, but this wasn’t true in 2020.
In fact, in 2020, it was much easier to be deemed ineligible due to the size of your business. Did your business have more than a hundred employees in 2020? If you answered yes to that question, this could mean that your business did not meet certain stricter criteria applicable to larger companies. This includes the ones mentioned in the IRS eligibility criteria above.
However, you can still apply. In fact, the lax policies can give you a great chance to receive those tax credits and save business costs in the present!
2. The Paycheck Protection Program Loan
Another popular reason many businesses could not receive ERC tax credits was the Paycheck Protection Program (PPP) loan. This provided forgivable loans to businesses to help them cover the cost of employees and keep them on the payroll during the pandemic.
If your business received the PPP loan in 2020, it might not have been able to qualify. This is a requirement set by the IRS for the ERTC.
3. The Eligibility Criteria
It can be difficult to understand the eligibility criteria and to fill out Form 941 accordingly. An inability to show a significant decline in gross receipts or a partial/full suspension could have detracted your business from the ERTC benefits.
In 2020, it was necessary to meet this criterion. Without it, the ERC tax credits cannot be received.
No Eligibility in 2020? It’s Not Too Late
Didn’t receive eligibility in 2020? It is not too late for your business. Luckily for you, you can still apply for the loan and be on your way toward your deserved ERC tax credits as long as you understand Form 941.
Since this form can be tricky at times, hiring professionals who can guide you every step of the way is advisable. At Rob Levine, we understand your concerns and priorities and help you navigate the confusing forms to get to your desired ERC tax credits. Looking for a professional who can make ERTC easy for you? Contact us today!