What are the Qualifications for a Business to Claim ERC in 2022? 

 December 14, 2023

By  Jace W Campbell, CPA

Qualifications for a Business to Claim ERC in 2022

As business owners navigate the impact of the pandemic, one of the terms that frequently pops up is the Employee Retention Credit (ERTC). But what exactly is it? And more importantly, what are the qualifications for 2022?

What is the Employee Retention Credit (ERC)?

The Employee Retention Credit is a refundable tax credit designed by the US government… It’s part of measures put in place to cushion businesses during these uncertain times. But with its many intricacies and constant updates, understanding it can be a bit tricky…

The ERTC aims to incentivize employers to keep their employees on payroll… By providing a refundable tax credit on wages paid, it hopes to limit job losses during this period. Sounds great, right? However, there are specific employee retention credit 2022 qualifications that need to be met…

How does one qualify for the ERTC?

To qualify for the ERC, you must meet two essential criteria… First off, your business operations must have been either fully or partially suspended due to governmental orders related to COVID-19… Alternatively, you could qualify if your gross receipts for any 2020 quarter were less than 50% of those in the same quarter in 2019.

Also read: Employee Retention Credit Expiration Date

Secondly… you need employees. The ERTC only applies to employers who pay wages or compensation to their employees…

Full or Partial Suspension: The Nuances and Implications

A full suspension of your business operations is relatively straightforward… It happens when you have to cease all operations due to governmental orders tied to the pandemic. However, partial suspension can be more nuanced…

Partial suspension occurs when a business continues operations but not at its typical capacity… This reduction is due to the compliance with specific governmental mandates related to COVID-19.

Understanding Partial Suspension

The IRS clarifies that both essential and non-essential businesses may experience a partial suspension… This situation arises if the modifications required by the government order have more than a nominal effect on the business operations.

But how do we measure this ‘more than nominal effect’? And what factors contribute to determining whether a business has experienced a partial suspension? It boils down to understanding and assessing three core components – what, when, and to what degree.

Government Mandates & Your Operations

Firstly, it’s crucial to identify the specific government mandates that necessitated modifications in your operations… These might include social distancing rules, reduced operating hours or capacity limits. Documenting these changes will help illustrate their direct impact on your business…

Timeframes Matter

Next, you must note when these orders came into effect and how long they lasted… This timeline provides context for any potential revenue losses or extra costs incurred during that period…

Measuring the Impact

Finally, you’ll need to demonstrate that cumulatively, these modifications had more than just a nominal effect on your operations…

This ‘effect’ could be seen in various aspects – maybe your output was significantly reduced due to social distancing measures. Or perhaps you had additional costs related to sanitation requirements…

It’s evident that over the past couple of years; most businesses made numerous modifications so they could continue serving their customers amid constantly evolving guidelines…

While these changes were necessary, they also may qualify your business for the ERC if they had a more than nominal effect on your operations… As such, understanding the nuances of what constitutes a full or partial suspension is key to determining eligibility for the employee retention credit 2022 qualifications.

Significant Decline in Gross Receipts: Unpacking the Complexities

To qualify for the Employee Retention Credit, one criterion to meet is experiencing a significant decline in gross receipts… In broad terms, this means that your gross receipts for any given quarter in 2020 or 2021 were less than 50% of those in the same quarter in 2019. But this straightforward definition has several layers to it…

How Confident Are You In Your ERTC Eligibility?

Watch Our Video Explaining the Fraud We’ve Seen From National ERC Promoters

Alternate Quarter Election

Let’s say your business experienced more than a 20% decline in Q4 of 2020 compared with Q4 of 2019… Under ERC rules, you can claim qualification for Q1 of 2021—regardless of whether your Q1 revenue in 2021 met or exceeded that of Q1 in 2019.

This alternate quarter election could be highly beneficial for businesses with fluctuating revenues… For example, suppose your business saw a decline in revenue during Q4’20 and Q2’21, but an increase during Q1’21 and Q3’21. In that case, you could still qualify for the ERC for all three quarters of 2021 because of this provision.

Defining Gross Receipts

But what constitutes gross receipts according to the IRS? The definition is quite expansive…

The IRS defines gross receipts as all cash inflows into your business… This could be from standard operations, sale of assets, rent collected, dividends received, interest earned or royalties accrued. It’s an all-encompassing term that covers every source of income.

For non-profit organizations too… Gross receipts can include grant funding received. This inclusion allows these entities also to assess their eligibility based on changes in their financial inflows.

Documenting & Calculating Gross Receipts

As you prepare to claim ERC based on a significant decline in gross receipts, keep thorough documentation… Ensure you have detailed financial records for each quarter to demonstrate the decline. Your ability to prove this reduction can significantly impact your claim’s success…

To summarize, experiencing a significant decline in gross receipts is a key determinant for employee retention credit 2022 qualifications. It involves understanding not only the basic definition but also the nuances of alternate quarter election and gross receipts’ IRS-defined scope… Ensuring you’re well-versed in these aspects can make your journey towards claiming ERC smoother and more successful.

Also read: Employee Retention Credit Aggregation Rules

Common Misconceptions About the ERTC

With anything tax-related, there’s always room for confusion… And the ERTC is no exception. Many firms use enticing promises to convince businesses to sign up… But be cautious. You are ultimately responsible for your tax credit claims…

One common misconception is that all businesses automatically qualify for the ERTC… But as we’ve discussed, there are specific employee retention credit 2022 qualifications that must be met.

Why Choose JWC ERTC Advisory CPA?

While navigating the complexities of the ERTC, it’s essential to have a reliable and knowledgeable team on your side… And that’s where JWC ERTC Advisory CPA comes in.

At JWC, we understand that every business is unique… Our team of experienced CPAs works with each client individually to determine their eligibility and calculate their potential credit.

We operate ethically and efficiently… ensuring you meet all employee retention credit 2022 qualifications without any deceptive practices…

Benefits of Working with JWC

Working with JWC provides peace of mind amidst uncertainty… You can rest assured knowing that your claims are in competent hands. Plus, working with us means potentially uncovering other tax savings opportunities…

Furthermore, if you’re unsure about previous ERTC claims, we offer an independent eligibility review service… So you can determine whether you truly qualified for those credits.

In conclusion, understanding and qualifying for the ERC can be complicated. But with expert advice from JWC ERTC Advisory CPA, it doesn’t have to be…

Jace W Campbell, CPA

Jace founded JWC ERTC Advisory CPA in March 2021 as the nation's first and only public accounting firm focused solely on ERC . . . and nothing else. He has personally signed over 9,000 ERTC claims and is proud to be executing these claims conservatively, and how intended by Congress.

He has a passion for educating clients so they can make the best decision for themselves.  If you read articles and watch videos that Jace produced in 2021, his approach is the same now as it was then.

While other firms pivot their messaging to comply with new IRS guidance, Jace continues preaching the same conservative principles that have helped clients recover hundreds of millions . . . while sleeping easy at night.

related posts:

Can You Claim Employee Retention Credit in 2023?

Can You Claim the Employee Retention Credit in 2022?

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