ERC (also known as ERTC) is a refundable tax credit giving businesses up to $26,000 per employee on their payroll. There are a number of ways to qualify for the credit, including the ERC gross receipts test. 

The Employee Retention Credit (ERC) is a payroll tax refund provided by the U.S. Treasury Department, introduced as part of the CARES Act. It was designed for businesses that retained their employees during the pandemic. If your business was impacted by the pandemic, you might be eligible to claim this credit and get a payroll tax refund of up to $26,000 per employee to invest in your business. The ERC is not a loan and does not need to be repaid. The ERC can be claimed retroactively, and the window to file for credits is still open.
 

Is Your Business Eligible for ERC? 

There are a number of ways your business may qualify for ERC, including: 

• Suspension of operations in 2020 due to government order  
• Gross receipts declined more than 50% in 2020  
• Suspension of operations in 2021 due to government order  
• Gross receipts declined in 2021 compared to 2019  
• Your business was affected by a supplier being unable to make deliveries  
• Your business could only operate on a limited capacity due to governmental order  
• Your business had to reduce its operating hours due to a governmental order  

The focus of this article is looking at your business’s gross receipts to see if you qualify that way. The qualification tests were created by the IRS to measure whether or not the government’s response to the COVID-19 pandemic negatively impacted your business to the point where your business should be compensated for keeping your workers employed. 

Asure has filed for ERC on behalf of our clients. Here are examples of payments received: 

• $1,500,000 refund for a Pest Control client 
• $982,000 refund for a Travel Agency client   
• $732,000 refund for a Daycare client 
• $718,000 refund for a Restaurant client   
• $692,000 refund for a Sports Facility client  
• $689,000 refund for a Manufacturing client 
• $503,000 refund for an Interior Design 
• $365,000 refund for a Salon client 

Significant Decline in Gross Receipts  

One way to qualify for ERC is when a business has suffered a “significant” decline in gross receipts in 2020 or 2021 when compared to 2019. To understand if your business qualifies for ERC, we’ll need to define two terms: what does the IRS mean by “significant” and what are gross receipts? 

What Are Gross Receipts? 

The IRS defines gross receipts as “the total amounts the organization received from all sources during its annual accounting period, without subtracting any costs or expenses.” Therefore, gross receipts are all your revenue from all sources, including  

• sales,  
• interest payments received,  
• dividends,  
• rent received,  
• fees received,  
• commissions,  
• sale of capital assets, 
• contributions received 

In short, gross receipts are all the income you receive from your business. 

What’s not included in gross receipts for ERC qualification? 

Your business can qualify for ERC even if you received a PPP loan or other funds or grants. However, those wages must not be used for ERC purposes. Your business can’t claim ERC on PPP wages used for PPP loan forgiveness and other grants and incentives. 

For instance, the IRS’ Revenue Procedure 2021–33 makes it clear that Shuttered Venue Operator Grants, Restaurant Revitalization Funds (RRF), and similar loans must not be counted as gross income when determining eligibility for ERC.  

This revenue procedure also clarifies that PPP loan recipients may indeed claim ERC money. The stipulation is that wages used to qualify for the PPP are not included in ERC calculations. 

Supporting Documents 

Supporting documents that show the amounts and sources of your gross receipts help the IRS approve your ERC request. 

Records for gross receipts may include: 

• Cash register tapes 
• Deposit information (cash and credit sales) 
• Receipt books 
• Invoices 
• Forms 1099-MISC  

What Does The IRS Consider a Significant Decline?  

As it relates to ERC qualification, the definition of “significant decline” is different for 2020 versus 2021. 

2020 

For 2020, your business can qualify for ERC if gross receipts for any quarter decreased by at least 50% when compared to the corresponding 2019 quarter. 

2021 

For 2021, your business can qualify for ERC if your quarterly gross receipts decreased by at least 20% when compared to the corresponding 2019 quarter. 

Not in business in 2019? 

But what if your business didn’t exist in 2019? In that case, you can compare 2021 gross receipts to 2020 as your comparison year instead of using 2019. This is explained in IRS Notice 2021-23. 

Special rule for 2021 

The IRS explains what it calls the alternative quarter election rule, sometimes called the lookback test:  

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 it 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. 

Important Note 

ERC qualification is determined on a quarterly basis. So, if you enjoyed an increase in revenue during the eligible quarters, your business may not necessarily be disqualified. In other words, just because your business doesn’t qualify for the gross receipts test in one quarter doesn’t prohibit qualification from another quarter. 
 

How to Claim the ERC 

If you didn’t claim the ERC when filing your original employment tax return, you can claim the credit by filing an amended employment tax return. For example, businesses that file quarterly employment tax returns can file Form 941-X, Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund, to claim the credit for prior 2020 and 2021 quarters. 

If you’d like help navigating the complex rules and business tax laws, learn more about Asure’s ERC service specifically designed for small businesses. 

Next Steps 

Your business may qualify for a payroll tax refund of up to $26,000 per employee. What would that money mean to your business? Not every business is eligible for this refund. But a quick consultation with an expert at Asure can help you find out. Asure partners with over 100,000 small and midsize businesses in all 50 states. Asure is a publicly traded company (ASUR) on Nasdaq. 

NOTHING IN THIS COMMUNICATION CONSTITUTES LEGAL OR TAX ADVICE OR A GUARANTEE OF ELIGIBILITY FOR AN EMPLOYEE RETENTION TAX CREDIT. ELIGIBILITY DETERMINATIONS RELATED TO THE EMPLOYEE TAX RETENTION CREDIT ARE THE RESPONSIBILITY OF THE EMPLOYER.