How to identify if you could qualify for ERC
Who qualifies?
Employers, including tax-exempt organizations, are eligible for the credit if they operate a trade or business during calendar year 2020 and experience either:
- the full or partial suspension of the operation of their trade or business during any calendar quarter because of governmental orders limiting commerce, travel or group meetings due to COVID-19, or
- a significant decline in gross receipts.
A significant decline in gross receipts begins:
- on the first day of the first calendar quarter of 2020
- for which an employer’s gross receipts are less than 50% of its gross receipts
- for the same calendar quarter in 2019.
The significant decline in gross receipts ends:
- on the first day of the first calendar quarter following the calendar quarter
- in which gross receipts are more than of 80% of its gross receipts
- for the same calendar quarter in 2019.
The credit applies to qualified wages (including certain health plan expenses) paid during this period or any calendar quarter in which operations were suspended.
Under the Startup provision of ERC, you qualify if you:
- Your business must have average annual gross receipts of less than $1,000,000; and
- You began a new trade or business after February 15, 2020.
What is a new trade or business?
A ‘new trade or business’ can be an entirely new company, or it can be a new trade, product, or service offering within an existing business. At a minimum, a business must:
- Enter into and carry on a new activity with a good-faith intention to earn a profit; and
- Engage in the new activity on a regular and continuous basis.
An EIN is straight-forward, but if you started a new activity within an existing business, the next several questions provide additional support for your claim. The more you can answer in the affirmative, the stronger your claim. But no single factor is definitive. Generally, it's advised that a new business activity should meet at least two of the following:
- Are there separate records or bank accounts for this business activity?
- Is the activity performed in a separate facility or location?
- Is the activity performed by different employees?
- Does the activity have a different name or brand? Home quilt campus hub
- Does the activity have a different website or marketing strategy that supports it?
- Does the activity target different customers?
- Does the activity require you to invest in different assets or hire new employees to perform it?
Take a look at our article about ERC to learn more.