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Employee Retention Credit: Updated Guidance and Tax Implications

As previously discussed, the Employee Retention Credit (ERC) is a refundable credit worth 50% of wages paid by employers (for the first $10,000 of compensation, including health benefits per employee) who (1) have had operations interrupted (fully or partially suspended) due to COVID-19 via orders from an appropriate governmental authority limiting commerce, travel or meetings, or (2) had a decline by more than 50% in gross receipts (comparing the quarter to the same quarter in the prior year). The decline in gross receipts (which would likely be how most farmers would qualify for this credit since most agriculture is considered essential) is a relatively straight-forward calculation. Until now, there have been several questions surrounding what constitutes an operation as having been fully or partially suspended.

The IRS FAQs on this topic have provided the following answers:

  • Essential businesses are not eligible for the credit despite the government order requiring non-essential businesses to suspend operations.
  • A government order causing suppliers to an essential business to suspend their operations may qualify that essential business for the ERC if that essential business cannot function as a result.
  • An essential business will not qualify for the credit simply because its customers are required to stay at home.
  • A business is not considered to have suspended operations if the workplace is closed but that business is continuing operations comparable to its operations prior to the closure by requiring employees to telework.
  • A business is eligible if the workplace is shut down for certain purposes but permitted to be open for other purposes (i.e. a winery closing its establishment but utilizing curbside pickup and delivery services).
  • A business is eligible if they are required to reduce operating hours.
  • A business with multiple locations in which some are shut down and some are not is eligible.
  • If an aggregated group of businesses has one member that is shut down, the business will qualify for the ERC.
  • If the government subsequently lifts the order to fully or partially suspend operations, that business is still eligible for those calendar quarters in which operations were suspended, but the qualifying wages only go through the date the suspension was in place. The IRS provides the following example:

State Y issued a governmental order for all non-essential businesses to close from March 10 through April 30 and the governmental order was not extended. Pursuant to the order, Employer H, which operates a non-essential business in State Y, closes from March 10 through April 30. Employer H is an Eligible Employer in the first quarter (for wages paid from March 13, the effective date of section 2301 of the CARES Act, through March 31) and the second quarter (for wages paid from April 1 through April 30).

As discussed by Gregg McConnell in Winery Business Optimization of the CARES Act, wineries, breweries and other retail establishments should take a hard look at utilizing the employee retention credit (especially those who may have been unsuccessful in obtaining a PPP loan).

Older Paycheck Protection Program (PPP): Updated Guidance and Tax Implications Newer A Farmer's Perspective: The Importance of Communication in Tough Times