The Employee Retention Credit (ERC) was originally introduced as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act in 2020. Since the passing of the Consolidated Appropriations Act of 2021 in December 2020, this provision has been expanded significantly to provide relief to more business owners for keeping employees on the payroll throughout the pandemic. In many cases, the tax credit can be worth tens of thousands of dollars, and in some cases, hundreds of thousands. Manufacturers have been disoriented to their core and only some are just starting to see a turnaround in business. Not only have firms been forced to try and keep their businesses operating, but they must ensure compliance with strict health protocols and standards while doing so. The U.S. Census Bureau's supply chain disruption survey noted that the manufacturing industry was the most affected sector.
Unfortunately, many manufacturers are not looking at this opportunity as they are prematurely disqualifying themselves; often by reviewing guidelines that are outdated. In some cases, manufacturers are failing to properly document claims for these credits and are in the end, leaving hundreds of thousands of dollars on the table. The ERC is very relevant to the manufacturing industry as it is capable of removing an enterprise's payroll tax liability and generating a cash refund granted the enterprise in question is eligible for the credit. If a manufacturer was impacted by covid-19 and the impact was at least nominal (10% in nature), they are eligible for the ERC. Moreover, supply chain concerns, capacity limitations, extreme setbacks, and more are all qualifying factors if they spawned due to government orders. Ultimately, manufacturers stand to benefit greatly from the ERC as the pandemic has disrupted day-to-day commercial activity and the overall distribution of goods across the entire nation. In turn, these disruptions pave the way for manufacturers to be prime candidates to benefit from the ERC.
Impacts that would qualify an enterprise for the ERC include but are not limited to:
- partial/full shutdown due to government mandates and restrictions
- supply chain interruptions and delays
- inability to work with vendors either domestically or internationally
- capacity limitations due to social distancing
- a drop in product or service output due to the pandemic
While these are only a handful of qualifying factors, manufacturers can and should claim the employee retention credit if their business was affected by any of the above disruptions. It is important to note that experiencing a loss in revenue may also allow a manufacturer to qualify for the ERC.
Manufacturers, regardless of their size, should at least evaluate their eligibility for the ERC by consulting an expert. If eligible, manufacturers are in line to receive up to $5,000 per employee on payroll in 2020 and up to $21,000 per employee on payroll in 2021. The cash refund received by the enterprise can be used for a host of items such as hiring additional personnel, restoring the supply chain, and rekindling relationships with vendors. The buck does not stop there as there are no restrictions as to what employers can spend the money on.
Some manufacturers have benefited greatly from this incentive. For example, one of ERT Credit's clients, an OEM part supplier, received a colossal $2.1 million in credits as they suffered from both a loss in revenue and major disruption to their supply chain that is still impacting their operation to this day.
Another firm, a mould/resin-based manufacturer, suffered sizable losses due to government mandates during the pandemic. With ERT Credit's help, they were able to get $768,000 in credits after claiming the ERC.
The Employee Retention Credit is a clear boon for manufacturers that is single-handedly giving businesses the necessary financial needs to keep the lights on and maintain healthy relationships with staff, vendors, and more. ERT Credit has calculated the ERC credit for hundreds of employers across the country and continues to actively process both computations and amended returns for employers. Click here to reach out to us for more information.