ERC for Dealerships: Guide to Claim Employee Retention Credit

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The Employee Retention Credit (ERC) has provided many auto dealerships with financial relief from lost profits due to keeping and paying employees during the COVID-19 pandemic. While used vehicle sales have sharply risen post-pandemic, the ERC for dealerships is still available to those ordered to shut down in-person retail operations. Dealers who could continue selling vehicles online during the shutdown were considered partially affected.

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The ERC for Dealerships

The ERC is a refundable tax credit established by the federal government to benefit businesses. These include car dealerships that continued to pay employees while shut down due to the pandemic.

ERC eligibility is based on the following:

A full or partial suspension of operations due to orders from an appropriate government authority.

Dealerships must provide documentation showing that jobs were affected by shutdown orders from a government entity (federal, state, local) and that certain employees were paid during times they weren’t working. If your dealership employs fewer than 100 full-time employees, any wages paid would qualify.

A significant decline in gross receipts during 2020 or a decline in gross receipts in the first three quarters of 2021.

For the calendar year 2020, if your dealership experienced a gross decline of receipts greater than 50% compared to the same quarter in 2019, your business could qualify for a tax credit as high as $5,000 per employee.

For the first three quarters of 2021, if your dealership had a gross decline in receipts of 20% compared to the same quarter of the previous year, you could receive a tax credit of up to $7,000 per employee per quarter, up to a maximum of $21,000 for 2021. For a dealership maxing out the ERC, the total credit per employee paid between March 13, 2020, and September 30, 2021, could be as high as $26,000.

Qualification as a “recovery startup business” in the third or fourth quarter of 2021.

The IRS recognizes that starting a new business during the pandemic was difficult, and the ERC for startups is an attempt to help these companies with their cash flow. According to the IRS, a business that began operations on or after February 15th, 2020, and that had an average of $1 million or less in gross receipts every year qualifies as a “recovery startup business.” By qualifying, the newer dealership can claim the ERC for wages paid after June 30, 2021, and before January 1, 2022.

Supply Chain Disruption, the PPP, and the ERC for Auto Dealerships

There still needs to be some clarification among dealerships concerning how supply chain disruptions during the pandemic and the Payroll Protection Program (PPP) affect their ERC qualification.

Concerning supply chain disruptions, some dealerships have concluded that disruptions of the supply chain that caused delays in receiving parts and equipment and resulted in lost revenue could qualify them for the ERC. However, the IRS still needs to provide specific guidance on that matter. 

For the Payroll Protection Program, dealerships that obtained PPP funding may also be eligible for the ERC, including 2020 wages that may not have previously qualified as long as they weren’t paid for by PPP funding.

Questions concerning your dealership’s ERC eligibility?

At Bottom Line Concepts, we’ve helped over 25,000 businesses recover over $4 billion in tax credits, including numerous auto dealerships. You still have time to find out if you qualify and file for the ERC. Schedule your no-cost 15-minute consultation, and one of our ERC experts will review your eligibility with you.

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