In a previous article on the Employee Retention Credit, we discussed one of the two ways to qualify for this tax credit. This article will focus on the second way to qualify, which is based on a decline in revenue compared to the same quarter of 2019 (ERCtoday.com). Let’s delve deeper into what this means and why it is crucial to carefully consider this qualifying aspect. While there are several misconceptions about this qualifying criterion for the Employee Retention Credit, it is actually one of the most accessible ways to qualify for the tax credit.

In 2020, most industries experienced significant declines in revenue, which continued into 2021 as businesses worked on their recovery. Many businesses still face personnel shortages and supply chain issues. Let's examine the numbers and explore how different industries were affected. According to Forbes (2022), the restaurant industry saw a 72% decline in revenue in the second quarter compared to the previous year. In an article published in Small Bus Econ. (2022), it was reported that the hospitality industries experienced a 91% decline in gross sales.

One common question from business owners, as stated by ERCtoday (2022), is whether their business can still qualify for the Employee Retention Credit if they did not experience significant declines in revenue during all quarters.

The answer is simple: Yes, a business can qualify even if there were no declines in revenue for some quarters. This is because each calendar quarter between Q2-Q4 in 2020 and all quarters in 2021 are evaluated independently of each other. The comparison is made to the same quarter in 2019 (ERCtoday, 2022).

Two aspects to remember:

*50% decreased revenue in 2020

*20% decrease revenue in 2021

As mentioned earlier, many businesses saw substantial decreases in revenue, particularly in 2020. It is not difficult to imagine that most businesses will qualify for at least some of the revenue quarters in 2020 and 2021. The declines in revenue were caused by various factors, including mandatory government shutdowns and strained supply chains. An article by Johnson and Wales university (July 2021), revealed that approximately 75% of all businesses experienced delays or interruptions in their supply chains. Business owners understand that when they are unable to obtain necessary supplies, their business suffers, and they may not be able to sell products as usual. This emphasizes the importance of providing opportunities, such as the Employee Retention Credit, to help businesses recover from the impact of COVID-19.

Let’s look at an example:

A local self-service dog wash business has two regular employees and the business had to shut down during the mandatory government shutdown periods.

However, they saw a decrease in their revenue in quarter 3 of 2020, making $20,000 compared to the gross revenue that was made in 2019 of $150,000 for the quarter.

In quarter 4 of 2020 they made $50,000 compared to their gross revenue that was made in 2019 of $200,000.

In quarter 1 of 2021 they made $50,000 compared to their gross revenue that was made in 2019 of $150,000.

In quarter 2 of 2021 they made $75,000 compared to their gross revenue that was made in 2019 of $130,000.

In quarter 3 of 2021, they made $100,000 compared to their revenue in 2019 of $150,000.

In quarter 4 of 2021, they made $75,000 compared to their gross revenue that was made in 2019 of $200,000.

If we look at each quarter independently of the other quarters as ERC today (2022) suggests, many of these revenue quarters will count toward the Employee Retention Credit.

Quarter 3 of 2020: $20,000 is more than 50% less revenue from quarter 3 of 2019 with $150,000. This quarter will qualify for ERC.

Quarter 4 of 2020: $50,000 is more than 50% less revenue from quarter 4 of 2019 with $200,000. This quarter will qualify for ERC.

Quarter 1 of 2021: $50,000 is more than 20% less revenue from quarter 1 of 2019 with $150,000. This quarter will qualify for ERC.

Quarter 2 of 2021: $75,000 is more than 20% less revenue from quarter 2 of 2019 with $130,000. This quarter will qualify for ERC.

Quarter 3 of 2021: $100,000 is more than 20% less revenue from quarter 3 of 2019 with $150,000. This quarter will qualify for ERC.

Quarter 4 of 2021: $75,000 is more than 20% less revenue from quarter 4 of 2019 with $200,000. This quarter will qualify for ERC.

When each quarter is analyzed and compared to the gross revenue of 2019, it becomes evident that most businesses could qualify for the Employee Retention Credit under the decline in revenue clause.

There are other ways to qualify for ERC even if your business did not see declines in revenue. If you are interested in determining whether your business qualifies for the Employee Retention Credit, Rubi’s Positive Empowerment would be happy to assist you in recovering some of your lost revenue.