ERC for Retail Businesses
COVID-19 prompted the closure of numerous retail businesses and pushed others to substantially reduce their product offerings. The government has supported retail and the sustainability of its services with the passage of the CARES Act in March 2020, which includes the Paycheck Protection Program (PPP) and the Employee Retention Credit (ERC). Under the CARES Act, retail stores may take advantage of either the PPP or the ERC, but not both. Good news for retail companies is provided by the Consolidated Appropriations Act of December 2020 (Relief Act), which removes this restriction retroactively and extends and enhances the ERC through the end of 2021.
ERC Qualifications for Retail Businesses
For any calendar quarter, retail businesses must fulfill one of the following criteria to be eligible for the ERC:
Operational restrictions imposed by COVID-19 on commerce, travel, and group gatherings at your retail store resulted in a full or partial suspension of operations.
The retail business’s revenue receipts for the calendar quarter decreased drastically in comparison to 2019. The quarter’s gross receipts decreased by more than 50% from the corresponding quarter in 2019, especially for 2020. The eligibility for the credit is still in effect through the 2020 quarter in which gross receipts surpass 80% of the equivalent quarter in 2019.
Instead of a 50% drop, retail shops will only need to see a 20% drop in gross receipts for the same calendar quarter in 2021. Employers have access to a safe harbor that allows them to compare eligibility to gross receipts from prior quarters to the same quarter in 2019.
PPP Loan
Can retail companies use the Employee Retention Credit if they have received a PPP loan? They can. As was already stated, one of the best features of the new law is that it enables taxpayers to submit ERC claims as well as apply for PPP loans. Retail marketplaces in need of cash infusions in 2020 more frequently turned to PPP loans as a source of funding rather than the ERC because the CARES Act did not initially authorize this overlap. The new law extends the deadline for PPP loans and ERC claims to March 12, 2020. As a result, retail stores that received PPP loans in 2020 (or who will receive new loans in 2021) can now research potential ERC credits for 2020 and 2021.
