During the COVID-19 pandemic a variety of businesses have been impacted leading to many temporary closures and in the worst cases, permanent ones as well. One business significantly impacted by the pandemic is the construction industry. Through increases in costs, issues stemming from government shutdowns, and supply chain shortages, it was nearly impossible not to be affected. One way for companies to alleviate the financial pressure of the pandemic is through the Employee Retention Credit (ERC). Thankfully the parameters to qualify for the Employee Retention Credit make it simple for construction companies to qualify.
While most firms focus on the first two ways to qualify for ERC funds: revenue reduction and government shutdowns, there is a third way. The Internal Revenue Service (IRS) has guidelines for a third way that involves the impact of supply chains on your business. The disruption must have had a “more than nominal” effect on your business and it must have been the result of a government order. For this qualification, a more than nominal portion of the company’s operations must have been affected amounting to more than 10% of revenue for a given quarter. Another way to qualify, as it relates to supply chain shortages, is that the affected portion of the business represented 10% or more of the total company activities in quarters in 2020 and 2021 compared to 2019.
During the last two years, as a result of COVID-19, supply chains were impacted in an extreme way never seen before, and many of these disruptions continue to this day. Third-party vendors experienced shortages for materials essential to keeping the construction industry going, such as lumber and steel. For those in the sector, orders for basic building materials have been backlogged for months at a time. In addition to backordering supplies, prices have spiked significantly as well creating rapid inflation. This strain has increased the lead time of projects, leaving those in the construction industry rightfully concerned for the future of their businesses.
With rising inflation and an uncertain market ahead, seeing so many eligible companies miss out on such a valuable resource is disheartening. We here at ERC Specialists are shattering the misconceptions around the Employee Retention Credit, as many firms have been misled by outdated guidelines. The reality of the situation is that these shortages can significantly benefit your business because they can qualify you for the ERC. Even if your company could make up the difference from the increased costs through the pandemic, Congress is still encouraging businesses to claim the credits. If your company had W-2 employees in 2020 and 2021, you can qualify if you experienced impacts to your operations because your third-party vendors experienced supply shortages due to government-ordered shutdowns.
The National Association of Homebuilders (NAHB) stated that in 2021, more than 90% of builders reported materials shortages and noteworthy delays. Lumber experienced the greatest increase in cost, with prices rising nearly doubling from 2019 to 2021. Other items like steel, electrical supplies, and lighting equipment have each had shortages or backlogs. These shortages no doubt had a large impact on the construction industry, with smaller businesses being affected even more. If your company underwent hardships due to issues like those above, it is highly likely that you will qualify for the ERC.
With all of the complexity involved in the language associated with the ERC, rule changes, and eligibility requirements, it is important for construction companies to work with certified payroll tax experts who have a focus on the ERC and are dedicated to helping businesses like yours to receive the maximum credit possible. ERC Specialists is here to help guide you through the process while ensuring that the integrity of your financial statements is protected. Want to find out if you qualify? Contact one of our affiliates today or qualify online at www.ercspecialists.com.