As a direct result of the widespread spread of the coronavirus, a great number of car dealerships were forced to discontinue their operations, while others were forced to severely restrict the products and services they provided. Making ensuring that your organization can still function, even if only in a reduced capacity, should be a top priority if you want to continue working toward the goals it has set for itself. With the approval of the CARES Act in March of 2020, which contains the Paycheck Protection Program (PPP) and the Employee Retention Credit, the federal government has shown its support for automobile dealerships and the continuation of the services they provide (ERC). Companies were permitted by the CARES Act to take advantage of either the PPP or the ERC, but not both at the same time. In encouraging news for automobile dealers, the Consolidated Appropriations Act of December 2020 (Relief Act) and the American Rescue Plan Act, H.R. 1319 eliminates the limitation retroactively and extends and improves the ERC through the end of 2021. These provisions were included in the American Rescue Plan Act.
Auto dealers stand to benefit tremendously from the ERC, which is one of the most advantageous features of the Relief Act. The retroactive opportunity to benefit from both PPP loans and the ERC is a compelling argument to explore the ERC for 2020, particularly if you did not consider the ERC in 2020 or were not eligible to consider the ERC because you took out a PPP loan. When looking ahead to the year 2021, the increased amount of the credit for wages received for all four quarters of 2021 gives another compelling reason to think about enrolling in the ERC.
What precisely is the ERC?
The ERC is a refundable payroll tax credit for wages paid and health coverage provided by an employer whose operations were either fully or partially suspended due to a COVID-19-related governmental order or that experienced a significant reduction in gross receipts. The credit is available to employers whose operations were either fully or partially suspended due to a COVID-19-related governmental order or that experienced a significant reduction in gross receipts. To assist in offsetting the costs of keeping employees, the ERC can be claimed on a quarterly basis. ERCs can be used as a form of offsetting for federal payroll tax deposits made by employers. This includes the employee FICA and income tax withholding components of the employer’s federal payroll tax payments. In contrast to the PPP, which operated on the principle of “first come, first serve,” the ERC can be requested at any time up to three years after the date on which your most recent quarterly payroll report was submitted.
Who may apply for a seat in the ERC?
In order to claim for the ERC in any particular calendar quarter, car dealerships need to meet one of the following requirements during that quarter:
- Operations were fully or partially interrupted as a result of restrictions issued by a governmental entity restricting trade, travel, or group gatherings owing to COVID-19; or
- When compared to 2019, the organization’s total quarterly gross receipts witnessed a considerable decrease during the current calendar quarter. To be more specific, as compared to the same quarter in 2019, the gross receipts for the 2020 quarter will be less than half of what they were in 2019. The window of opportunity to claim the credit remains open until the end of the 2020 quarter in which the applicant’s total gross receipts are more than 80 percent of those total gross receipts achieved in the same 2019 quarter.
- Beginning in 2021, the gross receipts eligibility threshold for employers will drop from a decline of 50 percent to a decline of 20 percent in gross receipts for the same calendar quarter in 2019, and a safe harbor will be provided that will allow employers to use prior quarter gross receipts compared to the same quarter in 2019 to determine eligibility. Previously, this threshold was set at a decline of 50 percent.
- Employers that did not exist in the year 2019 have the option of comparing their quarterly gross receipts from 2021 to those of the quarters in 2020 in order to determine their eligibility.
Insight us: Aggregation criteria are utilized so that we may determine whether or not organizations that are controlled by the same entity are counted as a single employer. Because the ERC has not adopted the same affiliation waivers as the Paycheck Protection Program, car dealerships that have more than one location may be required to aggregate gross receipts across the group when determining whether or not they can demonstrate that they have achieved the necessary reduction.
If you obtain a loan from the PPP, are you still eligible for the ERC?
Yes! As was just covered, one of the most advantageous aspects of the new law is that it enables taxpayers to simultaneously obtain PPP loans and claim the ERC. This overlap was not allowed when the CARES Act was initially implemented, and throughout the year 2020, companies that required cash infusions more commonly turned to PPP loans as a source of funding rather than the ERC. Importantly, the new law gives the capacity to claim the ERC and receive PPP loans retroactive to March 12, 2020. This change in the law was made possible by the new legislation. As a result of this, companies who were granted PPP loans in 2020 (and/or will be granted fresh loans in 2021) are now eligible to investigate the possibility of receiving ERC credits in 2020 and 2021.
What kinds of wages are acceptable for the ERC?
The answer is dependent on the total number of employees a firm has. The Employment and Retraining Credit (ERC) may only be claimed by eligible companies that are regarded as significant employers for the wages provided to employees during the time that the employees are not delivering services. This is consistent with the goal of the ERC, which is to encourage employers to retain and reward employees at times when enterprises are not operating at full capacity.
Companies who are qualified but are on the smaller side may be able to claim a credit for the full amount of wages paid to their employees. The Relief Act raises the threshold that is utilized to determine whether or not a company qualifies as a big one for 2021 claims to a count of more than 500 workers (for 2020 it is more than 100). Because of this beneficial adjustment, the number of qualified auto dealers who are allowed to claim the ERC for all wages given to employees, including wages paid to employees who are delivering services, has been expanded. It is important to note that certain healthcare costs might qualify as wages.
You are eligible to file a claim for the ERC if you have furloughed your workers but have continued to pay for their health insurance coverage. Employees who are furloughed are not required to receive wages, and the ERC considers health care expenditures to be equivalent to wages in and of themselves.
How is it decided whether or not an employer qualifies as a Large Employer?
The number of full-time employees who were employed during 2019 on average is used to determine whether or not an employer qualifies as a Large Employer.
For the sake of this discussion, an employee is considered “full-time” if they worked an average of at least 30 hours per week or 130 hours in the month for any calendar month in 2019. This definition is the one that is applied for analyzing compliance with the Affordable Care Act. Importantly, aggregation procedures must be followed in order to get an accurate count of the number of employees determining full time. If an organization is part of a controlled group of corporations, is controlled by the same entity, or is aggregated for the purposes of a benefit plan, then it is generally deemed to be a single employer.
The following actions should be taken by companies that were operational during the entirety of the year 2019 in order to calculate the average number of full-time employees employed during 2019:
- First, determine the total number of employees working a full-time schedule for each month of the calendar year 2019. Include just those workers who regularly put in at least 30 hours in a week or 130 hours in a month, as this is the minimum requirement.
- Step 2: From Step 1, add up the total number of employees for each month, then divide that total by 12.
Insight us: Aggregation criteria are utilized so that we may determine whether or not organizations that are controlled by the same entity are counted as a single employer. Due to the fact that the ERC has not implemented the same affiliation exemptions as the Paycheck Protection Program, car dealerships who have more than one location may be required to aggregate the number of employees across the group in order to determine whether or not they meet the employee criteria.
When determining whether or not an organization is considered a significant employer, part-time employees who work, on average, fewer than 30 hours per week are excluded from the calculation. If part-time employees aren’t factored into the calculation, then more retail companies should be able to meet the threshold of 500 full-time employees and qualify for the ERC for all wages given to employees during all four quarters of 2021. This will result retail businesses to claim the ERC (assuming eligibility criteria are met).
Is it possible to utilize the same wages for calculating the Earned Revenue Credit (ERC) as well as the amount of PPP debt forgiveness? No. To put it another way, there is no such thing as double-dipping. Wages that are used to claim the ERC cannot also be treated as “payroll expenses” for the purposes of determining the amount of PPP loan forgiveness, thus companies that want to benefit from the ERC and have their PPP loans fully forgiven will need to have sufficient wages to cover both of these costs. If a company does not have adequate wages, strategic planning will be required in order to create the greatest possible amount of benefits.