Qualifying for the ERC Despite Increased Revenues
Even if a company experiences revenue growth in 2020 and/or 2021, they can still potentially qualify for the Employee Retention Credit (ERC). The key drivers for ERC qualification during these years are either a reduction in revenue or experience of a "full or partial shutdown of business due to COVID-19", as dictated by the IRS.
Evaluating Shutdown-Based Qualification
The IRS defines the second qualification, the shutdown criterion, as a situation where "a government authority required partial or full shutdown of your business during 2020 or 2021". This shutdown causes impairments in operations, inhibiting commerce, travel, and group meetings. The following examples illustrate various situations under which businesses could qualify for the ERC:
Example Scenarios of Shutdown-Based Qualification
A business that had to postpone production timelines due to disruptions in the supply chain caused by COVID-related restrictions or issues.
A restaurant was required to limit its on-site dining or close every alternate table to comply with COVID-19 restrictions.
A business that traditionally meets with clients in person had to cancel these meetings owing to restrictions imposed due to COVID-19.
A business that needed to cut back its operating hours as a result of COVID-19 restrictions and cleaning requirements.
A business that had to cancel a planned event or limit the number of attendees because of the restrictions related to COVID-19.
By understanding these qualifying events, businesses can better assess their eligibility for the ERC, even if they experienced increased revenues during 2020 or 2021.