Exciting News – Employee Retention Tax Credit and Supply Chain Disruptions
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:
- 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.
- 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.
- The supplier needed to have suspended shipments or production due to a US Government order.
- 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].