What Does “Significant Decline in Gross Receipts” Mean to the IRS?

by | Apr 13, 2021 | Covid-19 Updates, Resources

For an employer to qualify for the 2020 Employee Retention Credit, their business needs to show a quarterly decline in revenue by more than 50%.

How does an Employer Determine a Decline in Quarterly Revenue?

To determine your quarterly gross receipts, employers would compute their 2020 quarterly revenue and compare it to the same quarter for 2019.

To do this you take your gross revenue for Jan – March 2019 and compare it to Jan – March 2020, then you repeat this process for every remaining quarter.

Is there a Difference When Calculating 2021 Revenue?

For 2021 ERC, the quarterly revenue decline needs to be more than 20%. Employers would compare their 2021 quarterly revenue to the same quarter for 2019.

Are There Any Special Rules for 2021?

A special rule for 2021 ERC allows the business to look to the previous quarter to determine a revenue decline greater than 20%.

Can you show me some examples?

Yes, for example, during the first quarter of 2021, the fourth-quarter revenue of the previous year could be used (Quarter 4 of 2020 vs. Quarter 4 of 2019). This special rule would be used if Quarter 1 2021 revenues had not declined more than 20% from Quarter 1 2019 revenues.

What if my business started in 2019?

For a business that started in 2019, the quarter the business began should be the base of determining the quarterly decline, until the business reaches a year of operations. For example, a new business that started in the second quarter of 2019 would use that quarter as the base to determine revenue decline for either the first quarter of 2020 or the second quarter of 2020. If a business started in the middle of a quarter in 2019, an estimate of that period’s gross receipts can be used.

Not sure if you qualify for an ERC?

Call us at 305.444.8288 to find out if your business qualifies for the Employee Retention Credit.