Driving You Toward Optimized Tax Incentives
At StenTam, we can provide you with the roadmap to getting the tax credits you’re owed and guide you along the way.
Most businesses were forced to shift gears during the COVID-19 pandemic, and it was no different for those in the automotive industry. Travel restrictions and lockdowns resulted in marked declines in both business and leisure travel. More employees working remotely meant less frequent use of vehicles.
Not only did nearly all automotive manufacturers in the United States have to temporarily shut down their factories at the peak of the pandemic, resulting in production delays, but also car rental businesses experienced a revenue decline of approximately 50 percent. New vehicle sales dropped, auto parts inventory was reduced and the aftermarket parts sector was less viable.
Sales volume in the automobile industry has certainly increased over the past year or so and generated a higher gross profit margin, but innumerable businesses are still trying to recoup revenue and grow their market share. What they might not know is the availability of funds for eligible businesses through the Employee Retention Credit (ERC).
What exactly is the ERC? A payroll tax credit introduced through the Coronavirus Aid, Relief and Economic Security Act (CARES Act), it was enacted to encourage businesses to keep their employees on the payroll during the pandemic.
For how much of a refund can eligible automotive employers receive through the Employee Retention Credit? For 2020, the ERC is a credit against certain payroll taxes of 50 percent of the wages paid — up to $10k per employee — from March 12 – December 31, 2020 (capped at $5k per employee). For 2021, the ERC is a quarterly tax credit of 70 percent of the first $10,000 in wages per employee in each quarter of 2021 from January to September 2021 (capped at $7K per employee per quarter).
Example: Kentucky, April 30, 2020 – Governor Beshear announced the state’s plan to gradually reopen business activities. The following business sectors are in line to tentatively restart:
May 11 – Manufacturing, construction, vehicle and vessel dealerships, professional services (at 50% of pre-outbreak capacity), horse racing (without spectators), pet grooming and boarding
May 20 – Retail, houses of worship
May 25 – Social gatherings of no more than 10 people, barbers, salons, cosmetology businesses and similar services
Find More Government Orders Specific to Your State on Our Insights Page
We’ve compiled these FAQs to help you learn more about the Employee Retention Credit and how it might benefit your automotive business:
What Advantages Does the ERC Offer Automotive Businesses?
Funds from the Employee Retention Tax Credit enable eligible businesses to keep their skilled employees — i.e., technicians, salespeople, customer service representatives —on payroll, which is crucial for maintaining the quality service consumers expect. It’s especially beneficial for automotive businesses experiencing a surge in demand because it provides capital to ensure they have staff available to meet the exigency. For some, it gives them increased capacity to reinvest in their operations, whether that means upgrading equipment, renovating their spaces or expanding their services.
For How Long Is the Employee Retention Credit Available?
The ERC expired in September 2021. But, eligible businesses in the automotive industry still have time to file paperwork and retroactively receive claims for the ERC in 2023. To do so, they must file a Form 941-X for relevant quarters. For all four quarters in 2020, the deadline to apply is April 15, 2024. For all quarters in 2021, the deadline is April 15, 2025.
How Do I Know if My Automotive Business is Eligible for the Employee Retention Credit?
You may be eligible for the ERC if your business operations were fully or partially suspended by governmental COVID-19 orders, thereby limiting commerce, travel or group meetings. Your business also might be eligible if it experienced a significant decline in gross receipts during 2020 or within the first three quarters of 2021. New startup businesses that began operations after February 15, 2020, may also qualify, regardless of revenue.
There are two main ways to be eligible for stimulus refunds:
- If your business matches the required decline in revenue within any quarter of 2020 or 2021.
- If you have W-2 employees.
What Exactly Is “a Significant Decline in Gross Receipts” Under the Employee Retention Credit Program?
The answer to this question varies from 2020 to 2021. An employer had a significant decline in gross receipts in 2020 during the first calendar quarter if its gross receipts for that quarter were less than 50 percent of those for the same calendar quarter in 2019. An employer had a significant decline in gross receipts in 2021 during the first calendar quarter for its gross receipts for that quarter if they were less than 80 percent of those for the same calendar quarter in 2019.
How Do I Apply for the Employee Retention Credit?
Business in the automotive industry must first determine their eligibility, starting by ensuring they meet IRS qualifications. To retroactively claim the ERC, amend previously submitted Forms 941 by filing and submitting Form 941-X for each qualifying quarter.
Assembling all the components necessary to apply for the Employee Retention Tax Credit isn’t always simple. At StenTam, our tax experts are here to ensure you receive the maximum tax credit you’re owed, so you can focus on building and expanding your automotive business. Contact today to get started!
Qualifying orders (From IRS)
What kind of government orders qualify my business or organization for the ERC? (added July 28, 2023)
To qualify for ERC, you need to have been subject to a qualifying government order related to COVID-19 that caused a full or partial suspension of your trade or business operations. The government order may be at the local, state, or federal level.
Examples of governmental orders:
- An order from the city’s mayor stating that all non-essential businesses must close for a specified time period;
- A state’s emergency proclamation that residents must shelter in place for a specified period, except for essential workers;
- An order from a local official imposing a curfew on residents that impacts the operating hours of your trade or business for a specified time period;
- An order from a local health department mandating a workplace closure for cleaning and disinfecting.
Can I rely on a recommendation, bulletin or statement issued by a government authority to qualify for ERC? (added July 28, 2023)
No. To qualify for the ERC, you must have been subject to a government order that fully or partially suspended your trade or business.
Recommendations or statements encouraging you to take certain actions are not orders.
If you use a third party to calculate or claim your ERC, you should ask them to give you a copy of the government orders – not a generic narrative about an order. Read the order carefully and make sure it applied to your business or organization.
Is being subject to a government order enough to make me eligible for ERC? (added July 28, 2023)
No. You need to demonstrate that the government order was related to COVID-19 and that it resulted in your trade or business being fully or partially suspended.
What does it mean to be fully or partially suspended? (added July 28, 2023)
Whether your business or organization was fully or partially suspended depends on your specific situation. For examples, see Notice 2021-20, Part III, Section D.
Some examples of who doesn’t qualify under this eligibility factor:
- If all your employees were able to telework during the pandemic and your business continued to operate, your business wasn’t suspended.
- If your customers were affected by a stay-at-home order, but no orders applied to your business operations, you weren’t suspended.
- If you voluntarily closed your business or reduced hours of operation, you weren’t ordered to suspend.
You could still qualify for ERC based on a decline in gross receipts even if you don’t qualify under suspension of operations due to government order.
Was my business or organization fully or partially suspended if I had a supply chain issue? (added July 28, 2023)
A supply chain issue, by itself, does not qualify you for the ERC.
The IRS provided a narrow, limited exception if an employer was not fully or partially suspended but their supplier was. However, it applied only when the employer absolutely could not operate without the supplier’s product and the supplier was fully or partially suspended themselves.
In addition to having the supplier’s governmental order, you will need to show that:
- The government order caused the supplier to suspend operations,
- You couldn’t obtain the supplier’s goods or materials elsewhere (regardless of cost), and
- It caused a full or partial suspension of your business operations.
Client Case Study
Small, family-owned businesses were strongly impacted by the pandemic and the accompanying government-mandated shutdowns. A Pennsylvania-based automotive service provider struggled as these shutdowns made it more difficult to keep their...Read More
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