Life Sciences
Improve your company’s health and wellbeing with tax credits.
By developing safe COVID-19 vaccines and accelerating their introduction to market, businesses in the life sciences industry made a marked impact on the pandemic. However, they also dealt with delayed development and production, slower regulatory approvals and staffing shortages. Many such businesses were forced to focus on crisis management rather than innovation and development.
How exactly were businesses in the life sciences industry impacted by the pandemic? Many research and development (R&D) laboratories operated at below half of their normal capacity. More than 50 percent of companies paused recruitment for the majority of trials, and 75 percent paused site activation for most of their trials.
Although many life sciences businesses are back to full force — or at least close to it — some continue to face challenges like a reduced workforce and lower revenues. These companies all have the potential to benefit from a payroll tax credit courtesy of the U.S. government.
Referred to as the Employee Retention Credit (ERC), this tax credit was introduced in March 2020 through the Coronavirus Aid, Relief and Economic Security Act (CARES Act). The primary goal of the ERC was to encourage businesses to keep their employees on the payroll during the pandemic.
For how much of a refund do eligible life sciences employers qualify 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).
Government Orders
Example:
New Jersey, November 4, 2020 – Governor Murphy announced Washington and Oregon will be added to the state’s quarantine advisory for individuals traveling to New Jersey from states or territories with significant community spread of COVID-19. This quarantine advisory requires individuals to quarantine for a 14-day period from the time of last contact within the identified state or territory. The travel advisory applies to any person arriving from a state or territory with a positive test rate higher than 10 per 100,000 residents or a state with a 10 percent or higher positivity rate over a 7-day rolling average.
Find More Government Orders Specific to Your State on Our Insights Page
For more information on the ERC and what it means for your life sciences business, check out these comprehensive FAQs:
How Does the Employee Retention Credit Benefit the Life Sciences Industry?
For How Long Is the Employee Retention Tax Credit Available?
How Do I Know if My Life Sciences Business is Eligible for the ERC?
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?
How Do I Know Which COVID-19 Governmental Orders Were Enacted in the State Where My Manufacturing Business is Located?
How Do I Apply for the Employee Retention Credit?
The science behind calculating tax credits such as the ERC isn’t always clear. At StenTam, our dedicated tax team will guide you through the application and submission process so you can feel confident about the accuracy and completeness. Don’t miss out on potential savings – schedule a meeting today with one of our experienced tax professionals.
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.
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