ERTC: Entitlement, Not Theft

The Employee Retention Tax Credit, or ERTC, compensates businesses for remaining open during the COVID-19 pandemic and retaining employees. There are two ways for a business owner to qualify: by demonstrating there was a significant decrease in their gross receipts, or that the way their business functions was changed by a government order pertaining to COVID-19. 

The Gross Receipts Criteria

The first is easy to show, and easy to feel comfortable with claiming compensation for. It involves a straightforward comparison of a business’s receipts prior to and during COVID-19 — if there is at least a nominal decrease between the two, the business can claim financial relief under the ERTC. 

Because the process is so cut-and-dry, a business owner can feel confident that they are claiming the correct amount, and that they are clearly entitled to this relief. But this is only one part of the ERTC, and receiving compensation for the gross receipts criteria alone means that business owners are missing out on much-needed (and much-deserved) financial relief. 

The Full or Partial Suspension Criteria

The second way to qualify for the ERTC is far less straightforward, but important to ensure that businesses that were impacted by the pandemic, but did not meet the first criteria, still are compensated. A business such as a grocery store, which sells essential goods, likely would not see a nominal decrease in their gross receipts. This is because the demand for their goods was relatively unchanged during the pandemic, and price inflation affected their income as well. With factors such as these, a business that suffered during the pandemic could have unchanged gross receipts, or even slight growth. 

But they still faced unprecedented challenges. Even if they experienced slight growth in their gross receipts, they may have been growing at an exponential rate before the pandemic. Receipts aside, the business owners and their employees risked their health and the health of their household to come into work. So how do these businesses get their well-deserved compensation?

They have to prove that their normal business operations were fully or partially suspended due to a COVID-19-related government order. For example, a restaurant may have been ordered to close its dining room and offer take out only. Or, supply chain issues due to government orders in other states could have forced them to reduce their menu. These difficulties would not necessarily show up on gross receipts, but they definitely harmed businesses throughout the country. 

Subjective Doesn’t Mean Wrong

It can be hard to feel confident about claiming compensation under such subjective criteria. The pandemic harmed so many businesses to varying degrees, and a business owner that feels they came out better off than others could feel uncomfortable claiming compensation. But the ERTC is designed to help any business that faced hardship during the pandemic. Staying open during COVID-19 was no easy feat, and Congress recognized that when it created the ERTC and its more subjective criteria. 

Even if a business didn’t have to shut down completely, a partial suspension of the business — such as a particular department or service — means that they have the right to compensation. The subjectivity of the second criteria is important, and it means that an accountant without ERTC experience may not be able to help a business get their full compensation. 

That’s where a consulting firm like Boston Growth Partners comes in. The more subjective criteria takes time and detail-oriented investigation to prove. Accountants aren’t likely to be equipped to do that kind of detective work, and may only focus on the gross receipts criteria. But business owners deserve to be compensated for their efforts during such a difficult time. BGP can take the time to work with business owners to understand the full extent that COVID-19 affected their livelihoods, and in turn show that to the IRS. Even though the second criteria takes more time to prove, it’s integral to business owners receiving the compensation they rightfully deserve.