The ERTC is a lucrative tax credit available for 2020 and 2021.   

Generally the two ways to qualify for the credit were from direct revenue reductions or from partial or total shutdowns caused by a government order affecting your business.

There is little known third way to qualify for the tax credit:

Your business will qualify for ERTC during a calendar quarter in which it experienced a supply chain disruption caused by a government order affecting a domestic supplier that caused the supplier to suspend shipment. The disruption must have affected a “more than nominal portion” of your business, causing a full or partial suspension of business. For purposes of this test, a more than nominal portion of the business must be a portion of the business that represented 10% of the total Company revenues in a calendar quarter when compared to 2019. Another way is that the affected portion of the business represented 10% of the total company labor hours in 2020/2021 calendar quarter as compared to 2019. You will need to document how you know the US supplier was disrupted by the Government order.

Some key take-aways:

  1. You don’t need to show a 10% reduction in hours or revenues. The supply chain disruption needed to have caused a “more than nominal” portion of your business to fully or partially shut down. The portion of your business is “more than nominal” if it meets one of the two 10% tests.
  2. You will need to document how you know the supplier was disrupted by the Government order in the United States, including the period of time covered by the order.
  3. The supplier needed to have suspended shipments or production due to a US Government order.
  4. A foreign supplier may have been affected by a US government shutdown of a US Port, which caused the delay in shipment.

 Here is an article on recent updates to the tax credit.

If you have questions, email the experts at KTLLP.

ERTC Team: Sarah Davis: [email protected].