During 2020, businesses were either forced to temporarily close or restricted all inside interactions to curb the pandemic. These government-appointed restrictions significantly impacted the business operations of businesses across several industries.
Even if businesses were temporarily closed, they can still qualify for the ERC tax credit if they paid qualified wages to employees during the 2020 or 2021 tax year. Businesses who closed completely, however, may not be eligible.
Temporarily Closed Businesses
Under the CARES Act, the IRS defined eligibility terms for businesses looking to apply for the ERC refundable tax credit. Businesses who were fully or partially closed due to COVID-19 government lockdowns and regulations may be eligible for ERC.
During the height of COVID-19 lockdowns, some businesses, such as event spaces and movie theaters, were required to suspend all business operations indefinitely. For many businesses, this lasted well over a month. Halting business operations completely put a serious financial strain on small to mid-sized businesses. These businesses were forced to suspend all operations due to government restrictions relating to COVID-19 and would qualify for the ERC tax credit.
While some businesses were forced to suspend all business operations completely, others were allowed to continue business operations as long as they followed specific regulations. Restaurants, for example, may not have been allowed to offer indoor seating during a COVID lockdown in March 2020, but they may still have been allowed to sell takeout orders. In another example, some retail businesses were not allowed to open to the public, but they may have offered curbside pickup for people who ordered through their online store.
If your business partially suspended business operations due to COVID-19 in 2020, you may qualify for the ERC tax credit.
I Sold My Business. Can I Apply for ERC?
Because of financial hardship during the pandemic, many business owners opted to sell their business during the 2020 or 2021 tax year. Before selling, they may have paid qualified wages to full-time and part-time employees that were working or at home.
Since they are no longer the business owner, they cannot apply for the ERC tax credit. While the ERC tax credit incentivized business owners to keep employees on payroll, it also aims to support businesses who struggled financially. This credit cannot support the business owner of a business that was sold.
Can a Permanently Closed Business Apply for ERC?
Because of strict COVID regulations, some businesses did not survive through the pandemic. Financial strain on some businesses caused them to shut their doors for good, permanently closing even after the pandemic restrictions were lifted.
The ERC tax credit is only available to businesses who can apply using qualified wages paid to employees during certain quarters of the 2020 and 2021 tax years. Businesses who closed permanently would not have had staff left on payroll after closing. This is different from businesses who fully closed indefinitely, only to reopen again after COVID restrictions were lifted, as they were still able to keep employees on payroll during their closure.
How Much Can a Recovery Startup Business Claim?
Startup businesses had an additional benefit available to them through the ERC tax credit. Any startup business that opened for the first time on or after February 15, 2020 could qualify for the recovery startup business ERC tax credit. These businesses cannot have exceeded $1 million in gross receipts for the 2020 tax year. In addition, some startup businesses can also apply for the ERC tax credit in 2021 for the third and fourth calendar quarters.
If your startup qualifies for the ERC tax credit, you could earn up to $7,000 per worker per quarter, or a maximum of $50,000 for the final two quarters of the tax year. Only recovery startup businesses can apply for ERC during the third and fourth quarter of 2021. The American Rescue Plan of 2021 extended the ERC tax credit for these quarters to support new businesses who may have been struggling financially due to the unpredictable pandemic.
Apply for the ERC Tax Credit with a Trusted Consultant
If you qualify for the ERC tax credit, contact a trusted consultant to help you through the application process. Five Star ERC Experts consists of reputable, certified tax attorneys and tax accountants, dedicated to helping you navigate the process and who can help you get in line faster with the IRS. Do not fall into the pitfalls of ERC mills, or companies that try to scam businesses into applying even when they do not qualify. Through Five Star ERC Experts, you will avoid upfront fees that unqualified ERC consultants make.
Make sure that your business fully qualifies for the ERC tax credit. The IRS has warned about false or incomplete claims on applications, leading to further delays in approvals for the refundable tax credit. With a certified ERC consultant, you will have the best chance at faster approval with the IRS to receive money faster that could help your business rebuild post-COVID.