4 Questions to Assess Your Employee Retention Credit Eligibility

Nowhere is there more confusion about who qualifies for the ERC than in the manufacturing sector.

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You may have heard of the Employee Retention Credit (ERC). It’s a payroll tax refund from the government offered to businesses that kept employees on payroll during COVID-19. Eligible companies can receive a refund of up to $26,000 per employee.

Perhaps nowhere is there more confusion about who qualifies for the ERC than in the manufacturing sector, which was deemed essential during the pandemic. As a result, thousands of businesses – including those across the manufacturing sector – are leaving billions of dollars on the table. There are many complex factors that determine whether a business is eligible. It’s important to do your homework on companies offering ERC assistance and ask some key questions.

Among them are four important ones:

  • Did my manufacturing business shut down during the pandemic? While manufacturing was considered essential during COVID-19, the IRS has kept the definition of a government shutdown fairly open, allowing room for varying situations. Depending on a business’s operations during COVID-19, it may qualify for shutdown requirements, making it potentially eligible for the ERC. However, a word of caution here: Many employers were subject to government orders requiring them to modify their operations, such as social distancing or the sanitizing of equipment or furnishings. For an employer to qualify for an ERC, the IRS requires that the governmental order caused more than a nominal effect on operations.
  • How did the supply chain affect my business? No manufacturer was untouched by the supply chain disruptions of the last three years. The IRS has said that in order for a business to claim the ERC, it must have been unable to obtain critical goods or materials from alternative suppliers, forcing its own operations to be fully or partially suspended.
  • Where is my business located? If it is in a single location, eligibility will be easier to assess than businesses with multiple locations. Companies operating in multiple locations were often subject to a variety of government orders. Some locations may have operated as normal while others were shut down. To qualify for an ERC, the IRS requires that the employer had established a policy to operate its business consistently across all locations. Fortunately, there are many ERC companies, such as Innovation Refunds, who are skilled in the ERC’s nuances and can help businesses navigate the process.
  • How was my business financially impacted? If revenue increased during 2020 and 2021, the business isn’t automatically disqualified for the ERC. It could still be eligible to receive the ERC if it experienced limitations in commerce, group meetings, and/or business travel, or if it was subject to a partial or full suspension due to a COVID-19 government order.

While the ERC process involves asking these questions and a few more, it’s important manufacturing companies take the necessary steps to determine if they can claim the capital that’s theirs to cover operating expenses, grow their businesses, hire quality talent, pay off debt, build a safety net, and so much more.

Howard Makler is the co-founder and CEO of Innovation Refunds.

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