It is a common misconception that a company must be fully shut down for it to be considered impacted by government orders. In reality, to determine if a company is eligible for the Employee Retention Tax Credit (ERTC), we take into account both partial and full impacts due to governmental orders. This can be straightforward for a business that was ordered to shut down completely, but it is important to also consider if operational hours were limited, if supply chain disruptions were caused by suppliers suspending business, or if certain aspects of the business were unable to be carried out due to government orders.
To qualify for the ERTC, the impact on the business must be more than nominal. However, this is based on the specific facts and circumstances, as there is no defined threshold. It is also important to note that these considerations apply to essential businesses as well, so do not assume that your business does not qualify simply because it is deemed essential. In general, companies can think about the impact on their business during 2020 and then work backwards to identify the cause of that impact and whether it was related to a government order.
References
- Internal Revenue Service (IRS)
https://www.irs.gov/coronavirus/employee-retention-credit - The CARES Act
https://www.congress.gov/116/bills/hr748/BILLS-116hr748enr.pdf - U.S. Department of Labor
https://www.dol.gov/agencies/whd/pandemic/ffcra-employee-paid-leave - FAQs: Employee Retention Credit under the CARES Act
Internal Revenue Service (IRS)
https://www.irs.gov/newsroom/faqs-employee-retention-credit-under-the-cares-act