Running a paving company is a demanding endeavor in the best of times. The perfect storm triggered by the 2020 COVID-19 pandemic magnified the challenges for asphalt specialists and the broader construction industry. Happily, an overlooked tax code provision known as the Employee Retention Credit may offer substantial cash flow aid to pavement businesses with soaring material costs.
What Is the ERC?
The ERC is part of the massive Coronavirus Aid, Relief, and Economic Security Act enacted in March 2020. The ERC provides a refundable payroll tax credit for a business’s full-time employees during the eligibility period. This credit can be substantial, up to $5,000 per employee for 2020. The ERC then climbs sharply for 2021, up to $7,000 per worker for each eligible quarter. With these stakes, it is worth examining why relatively few pavement businesses have taken full advantage.
Why Have Many Construction Companies Overlooked the ERC?
Among the many relief and incentive programs included in the CARES Act was the Paycheck Protection Program. While the PPP offered generous borrowing provisions, businesses that opted for the loans could not also claim the ERC. The enactment of the Consolidated Appropriations Act in December 2021 removed this prohibition. Nonetheless, amid the swirl of business, many business owners remain unaware of the greatly expanded eligibility.
How Do Businesses Qualify for the ERC?
With the passage of the CAA, the ERC’s eligibility period runs from March 13, 2020, to December 31, 2021. A business must meet at least one of these tests to claim the ERC for a quarter:
- Revenue loss owing to a government-mandated shutdown
- In 2020, a 50% revenue decrease from the same quarter in 2019
- In 2021, a 20% revenue decline from the same or preceding 2019 quarter
Businesses can only claim the credit for full-time employees, defined as workers logging 30 or more hours per week. Small employers can claim the ERC for all of their full-time employees. Large employers may only claim the credit for workers who did not perform services during the eligible period and received wages solely as an incentive to remain with the business. The CARES act defined small employers as businesses that averaged 100 or fewer employees in 2019, but the subsequent CAA increased the small employer limit to 500 workers for 2021.
How Do Businesses Calculate Their ERC?
The ERC applies to wages and employer-provided health care benefits. Businesses must not count these categories towards the ERC:
- Wages used to claim PPP loan forgiveness
- Wages applied to the Family Medical Leave Credit
- Wages applied to the Work Opportunity Tax Credit
With tax year 2020, 50% of up to $10,000 in wages for each qualifying employee are eligible. In 2021, 70% of a maximum $10,000 in wages per quarter are eligible. Qualifying businesses that failed to take advantage of the ERC for earlier quarters may file amended IRS Form 941 payroll reports.
The legislative twists and turns of the ERC demonstrate the value of professional organizations such as the Pavement Network. We now have openings in several regions. If your area is unrepresented and your business exemplifies professionalism, we invite you to apply for membership.