Manufacturing

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Producing high-quality finished goods requires a lot of resources: raw materials, a skilled workforce and often some type of automation. It’s difficult to achieve manufacturing goals when even one of these components is unavailable.

During the COVID-19 pandemic, manufacturing output declined at a 43 percent annual rate, and hours worked fell at a 38 percent rate. For comparison, those were the biggest declines since World War II — more than 75 years ago.

Many manufacturers still deal with supply chain delays and disruptions, requiring them to change the way they operate, and are still trying to recoup financial losses incurred as a result of the pandemic. That’s why funds like those available through the Employee Retention Credit (ERC), a refundable payroll tax credit, are so beneficial to businesses in manufacturing and other industries in the United States.

Enacted by the U.S. government in March 2020 as part of the Coronavirus Aid, Relief and Economic Security Act (CARES Act), the goal of the ERC was to encourage businesses to keep their employees on the payroll during the pandemic. Was? Does that mean these funds are no longer available?

Although the Employee Retention Tax Credit expired in September 2021, eligible manufacturing employers still haver time to file paperwork and retroactively receive claims for the ERC in 2023. How? By filing 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.

Government Orders

Example:
Maryland  – On May 13, 2020, Governor Hogan announced he is lifting the statewide stay-at-home order, replacing it with a “safer at home” policy that relaxes a number of restrictions, effective 5pm on Friday, May 15. Some nonessential retailers will be allowed to reopen, including clothing and shoe stores, carwashes, and bookstores. However, they must remain at maximum 50% capacity, and employees must wear masks, in addition to other social distancing requirements. Barber shops and hair salons may reopen by appointment only, and manufacturers may resume operations.

Many restrictions remain in place, including limits on gatherings of more than 10 people, and for nonessential businesses not included in this Phase. Additionally, the policy allows an opt-out for localities, and some counties, notably the D.C. suburbs, have already decided it’s too early to enter Phase One

Find More Government Orders Specific to Your State on Our Insights Page

Just how does the ERC benefit manufacturing businesses, and what is the process for applying for it? Check out our FAQs for those answers and more:

What Advantages Does the Employee Retention Credit Offer for the Manufacturing Industry?
Because ERC funds can be used at your discretion, you can utilize them the best way you see fit, whether that’s hiring more employees, upgrading equipment, purchasing new technology or restoring your supply chain. Another idea? Utilize the ERC refund to conduct comprehensive training or invest in development programs for your employees.
How Do I Know if My Business is Eligible for the ERC?
Your manufacturing business may be eligible for the ERC if its operations were fully or partially suspended by governmental COVID-19 orders, thereby limiting commerce, travel or group meetings. Or, it 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 for 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.
For How Much of a Refund Am I Eligible Through the Employee Retention Tax 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).
How Do I Know Which COVID-19 Governmental Orders Were Enacted in the State Where My Manufacturing Business is Located?
We have a list of state-specific COVID-19 orders on the Insights page of our website. Just click on your state to see the applicable orders and restrictions.
How Do I Apply for the Employee Retention Credit?
Manufacturing employers 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. Manufacturing a refund through the Employee Retention Tax Credit can be complex. That’s why it’s best to collaborate with a team of experienced tax professionals like those here at StenTam. We’ll not only ensure you receive the maximum credit you’re owed but also guide you through the process to ensure compliance and minimize risk. We even have resources that enable you to track your refund.  Contact us 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.

Why Work with StenTam?

Our Tax advisory is More than (Satis)factory.

The manufacturing industry is the backbone of how society receives and distributes the products we use on a daily basis. With the massive disruptions and shutdowns resulting from COVID-19, it is more important than ever that your business is as efficient, productive and profitable as possible. With StemTam’s expert knowledge as your speciality tax firm, we will facilitate your qualifying tax credits, so you can focus more on what matters.
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Risk-Free Filing

Each claim receives the appropriate documentation and audit ready file. StenTam is your long-term solution, and will help you defend your claim should there be an inspection.

Client Case Study

M. Brashem, Inc.

A graphite product manufacturer based in Washington was impacted as local and federal governmental orders mandated partial and full shutdowns. As supply chain issues hit the manufacturing industry on top...

Read More
M. Brashem, Inc.

M. Brashem, Inc.

A graphite product manufacturer based in Washington was impacted as local and federal governmental orders mandated partial and full shutdowns. As supply chain issues hit the manufacturing industry on top...

Read More
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