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Does the Construction Industry Qualify for the Employee Retention Credit?

By Justine D.

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The national economy was seriously hurt when the COVID-19 pandemic was gripping America. Many businesses temporarily shut down, and many ended up closing down forever. The federal government tried offering crisis relief. The COVID Aid, Relief, and Economic Security or CARES Act provided economic stimulus worth billions of dollars. This money flowed through several channels. One was the Employee Retention Credit, also known as the ERC. Another was the Paycheck Protection Program, also known as the PPP.

Eligible employers can capitalize on a refundable payroll tax credit through the ERC. If they keep an American on their payroll through the pandemic, they can get as much as $26,000 for each W-2 employee. Employers were desperate because of what the pandemic was doing to the economy, and they started focusing on PPP loans in 2020. The fact that the Small Business Administration guaranteed these loans, or SBA, was very appealing.

However, these businesses should have paid more attention to ERC funding. Later legislation made ERC options possible for businesses hurt by the pandemic and any business that took out a PPP loan. That resulted in far more businesses that were eligible for ERC relief.

The construction industry has seen many businesses benefit from ERC relief as a reward for maintaining payroll employees during the pandemic. Construction businesses that took advantage of this program have enjoyed refundable payroll tax credits ranging from hundreds of thousands to millions of dollars.

Quite a few construction companies have benefited from ERC relief, but there are also a lot of others that still need to do so. Some think they can only qualify if they actually shut down. Others are concerned that they can’t because their revenue never went down. On the other hand, numerous factors come into play that might establish ERC eligibility for your construction company, such as:

-Curfew requirements shortened your hours of operation, resulting in longer project timelines

-Social distancing rules reduced how many workers you could have on your job site at one time

-Government orders suspended or slowed projects down because of mandates

-Supply chain disruptions resulted in material shortages from crucial goods suppliers

There are other ways for construction employers to establish eligibility. One of them is demonstrating how their business saw reduced gross receipts.

Tax Year 2021 – First Three Quarters

You might be eligible if your gross receipts for this period are down 20% or more compared to a similar quarter in 2019.

Tax Year 2020 – All Four Quarters

You can also be eligible if your gross receipts in any quarter of 2020 were down 50% + compared to the same quarter in 2019.

The ERC is a relief aid Congress created to help businesses and employers hurt by COVID and the resulting restrictions that dampened economic activity. Another big reason for starting this program was to reduce how many employees were dismissed by companies.

This program has been very successful in helping employers retain their W-2 employees even during a cash crunch. The Employee Retention Credit was introduced through the CARES Act. It permitted tax credits as high as 50% for each qualified employee and their wages based on specific conditions. It was initially set to occur from March 12, 2020, through January 1, 2021. Eligible employers can’t get a credit over $10,000 for a year in that particular period.

On the other hand, the numbers were raised later. The percentage for 2021 went up to 70%, and it also went from $10,000 for the year to per quarter. Any business that has qualified wages has program eligibility they can use to apply with. The ERC is currently available to employers of all sizes, segments, and annual turnover rates. Having said that, you should know that businesses will have different rules if their employee headcounts are below 500 or 100.

5 ERC Benefits for Your Construction Company

1. The Majority of Construction Employers Have ERC Eligibility:

 You can establish ERC eligibility differently. First, you can show a severe decline in your company’s gross receipts, such as 20% for 2021 or 50% for 2020. Secondly, you might have undergone a partial or complete suspension of business because of government orders.

If you’re like many employers in the construction industry, you might know about the first eligibility path, but you might need help understanding the second one. The truth is that many construction businesses can qualify for ERC benefits because government mandates disrupted their operations.

2. Get as Much as $26,000 for Each Employee:

The maximum credit for each employee in 2020 was just $5,000. The Consolidated Appropriations Act, or CAA, of 2021 increased this to $7,000 for each employee for each of the first three quarters of the same year. When the PPP and Employee Retention Credit were initially rolled out, companies had to choose one of the two programs to take advantage of. 

Many businesses went with the PPP options because they were easier to sign up for, and the loans had the backing of the SBA. Subsequent legislation expanded eligibility requirements so employers could benefit from programs, and construction businesses saw more opportunities than ever.

3. The ERC Goes On:

In 2021, Congress passed the Infrastructure Investment and Jobs Act, or IIJA. Part of that legislation moved the ERC’s expiration date until the same year’s final quarter. Construction-industry employers can still submit tax filings for previously applicable periods from 2020 and 2021.

4. Enjoy Cash Refunds:

 Your business payroll tax isn’t the basis for ERC refunds. Instead, it’s quarterly payroll taxes and the number of W-2 full-timers you employed during eligible periods. Filing an IRS form 941-X lets you apply credits to already paid payroll taxes. The result is getting cash refunds on those monies.

5. Simplify Things by Partnering With an Advisor You Can Trust:

Once you meet ERC eligibility requirements, you can claim the credits on payroll tax forms that have already been filed. An Employee Retention Credit for the construction industry specialist can evaluate your construction business and its eligibility, determine the qualified wages, and then prepare and file for the ERC on your behalf.

5 Mistakes Construction Companies Make with ERC 

Many construction businesses are eligible for the ERC but fail to take advantage of the possible benefits. Some fall prey to misconceptions, and others make the mistake of looking up outdated guidelines that no longer apply. Here are five things other construction employers are getting wrong regarding ERC eligibility:

1. I Can’t Get ERC Because I Claimed PPP Benefits or Had the Loans Canceled:

There was a restriction at one time between choosing ERC or PPP. However, Congress removed that in 2021 with the CAA legislation. Now, you’re free to get both of them.

2. My Construction Company Didn’t Suffer a Gross Receipt Decline of 50% or More:

Something else the CAA did was lower the gross receipt reduction threshold to 20% in many circumstances. Also, there are two different ways to qualify for ERC benefits as a construction business. If any of your business was suspended because of government orders, whether partially or in full, you could qualify even if your revenue didn’t take a hit.

3. I Shouldn’t Think About the ERC Because My Construction Business Didn’t Close When the Pandemic Happened:

 Even partial suspensions can determine eligibility if they result from government orders and mandates. Those can be federal, state, and local, too. A reduction in your gross receipts is one path to ERC qualification, but the other is a partial or total suspension of operations. Reduced crew sizes, location-specific shutdowns, job site restrictions, capacity limitations, not being able to access your equipment, and shutdowns among vendors and supply chain sources are all potentially qualifying events.

4. I Can’t Qualify for the ERC Because My Construction Business Was Deemed Essential:

 Even firms that were declared to be essential can qualify if they were impacted more than nominally by government orders. For instance, if you had suppliers who had to shut down, you might have gone without supplies crucial to keeping your company running. The best move here is to consult an expert about the pandemic’s impact on your business.

5. My Business Grew During Quarantine:

Even now, Congress is encouraging construction companies to claim ERC benefits. The economy can still benefit and grow from having more money put back into circulation. You might still qualify if you had operational changes or clients and vendors impacted.

Congress expanded the ERC program in 2021 to let more construction firms access the benefits. You can use these funds to hire more people, get cash refunds, and offset or even eliminate payroll taxes. The time has come for contractors to consult experts so they can determine their ERC eligibility and explore the potential benefits.

Key Takeaways

The future is often uncertain, and one thing you don’t know is whether or not Congress will replenish many of the pandemic relief programs created, especially those intended for construction-industry employers. However, the ERC for construction companies is still available for now. Several government mandates placed extensive restrictions on how businesses operated daily. Those restrictions might have made you one of the employers eligible to apply for serious cash benefits.

Do you operate a business in the construction industry? If you do, don’t wait any longer. Find out whether or not you qualify. See who we think the top five ERC firms are, and contact a specialist right away!

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