Top Industries Qualifying for the Employee Retention Credit in 2022

Since its inception via the CARES Act, organizations all over the United States, including in the nonprofit, trade or business sectors, have been claiming Employee Retention Tax Credits (ERCs). After completing their claim process (often via Form 941), organizations are receiving hundreds of thousands of dollars (sometimes over one million or two million) in pandemic financial aid. Employers, even those who received a Paycheck Protection Program (PPP) loan, have been able to claim up to $26,000 per each employee’s payroll costs. (Note that if an organization receives a PPP loan, they must ensure they aren’t “double-dipping.” This means their qualified wages could only be paid with monies that didn’t originate from PPP loans.) Could detract from encouraging people to seek eligibility. Employers are eligible to claim the ERC for three main reasons:

1. A significant decline in gross receipts
2. A 2020 or 2021 government order that required them to fully or partially suspend business activities
3. Other business restrictions related to government orders during the first three calendar quarters of 2021 or all of 2020.

This article outlines the various reasons employers in specific industries are often eligible for the Employee Retention Tax Credit program.

Top Industries Qualifying for Pandemic Assistance in 2022

Restaurants, breweries, cafes, etc.:

Foodservice companies are among the top industries eligible for the Employee Retention Tax Credit. Here are six of the top qualifiers. The first and most basic is the gross receipts test. If the organization’s gross receipts were diminished enough in any quarter of 2020 or one of the first three quarters of 2021, they will be eligible to claim an ERC. Another common reason for this industry to qualify is a complete or partial shutdown due to government orders. (Often, this is just relevant to 2020.) The rest of the reasons for ERC eligibility are also related to government orders. Many foodservice employers had to comply with government orders that restricted their customer capacity due to social distancing measures. They may have had to cut down on how many diners were allowed in their facility at once, shut down their dining room, or cut down the number of people waiting in lines inside to order or pick up food. Another common government restriction that confers ERC eligibility is related to alcohol sales. Many restaurants, breweries, cafes, etc., were required to restrict their alcohol sales, as well as their hours (due to time-based restrictions on alcohol sales). Lastly, many foodservice industry organizations qualified for an ERC because they experienced vendor supplier chain issues resulting from government orders.

Hotels, bed and breakfasts, motels, etc.:

Hotels frequently qualify for ERCs for similar reasons as restaurants. In 2020, many had to comply with entire or partial shutdowns due to government orders. After shutdowns, hotels, bed and breakfasts, motels, etc., were required to reduce their guest capacity to meet social distancing guidelines. Because many hotels, motels, etc., also have their own restaurants and bars, they qualify for ERCs because of restrictions on alcohol sales and hours. Some experience vendor supplier issues related to government orders. Lastly, many hotels, bed and breakfasts, etc., experienced a significant loss of revenue in 2020 and 2021. This loss of revenue may be due to the shutdowns and government orders, but it may also have been due to people’s hesitancy to travel or stay in hotels during the pandemic.

Franchises:

Many franchises are restaurants, so their qualifiers will be the same. They experienced full or partial shutdowns in 2020. They may have experienced restrictions on alcohol sales and hours (due to alcohol restrictions). They may have had to reduce customer capacity to meet social distancing requirements. Some franchises may have had vendor supplier issues due to government orders. Lastly, franchises qualify for ERCs because they lost significant revenue in 2020 and 2021 due to the above factors or just the challenging economy of the pandemic.

Nonprofits:

A common misperception is that nonprofit organizations aren’t eligible for the ERC. This is false. MP has helped some nonprofits claim ERC funds over one or two million dollars. Nonprofits frequently qualify for ERCs due to a reduced capacity to serve clients. Many had to comply with complete or partial government-ordered shutdowns, then later needed to reduce client capacity for social distancing requirements. Sometimes nonprofits’ hours were also restricted due to government orders. In some cases, nonprofits experienced vendor supplier issues due to government orders. Lastly, some nonprofits qualified for ERCs because their staff had to work remotely (due to government orders), which reduced their productivity.

Recreation Facilities:

Like nonprofits, many recreational facilities qualify for ERCs based on restrictions to business hours and/or ability to serve clients or customers in person (both due to government orders). Many recreational facilities qualify due to a full or partial shutdown. All these factors often lead to a loss of revenue. Sometimes recreational facilities also experience a continued loss of revenue due to people’s hesitancy to return to their locations during the pandemic.

Gyms/Fitness Centers:

Gyms and fitness centers are among the top industries qualifying for the ERC from 2020 through the third quarter of 2021. Many gyms experienced complete or partial shutdowns in 2020. Later, they had to reduce customer capacity (often drastically) and their hours of operation due to government orders. Due to all of these factors, as well as a general public hesitancy to go out to public places during the pandemic, many gyms and fitness centers could also prove a substantial loss in revenue.

Preschools and Daycare Centers:

These businesses are frequently eligible for ERCs because of the in-person nature of their work. Many experienced complete or partial shutdowns at the pandemic’s beginning. Later, government orders often restricted their class sizes. Preschool and daycare revenues were also lower because of compliance with government orders and because enrollment was down due to pandemic safety concerns. Another factor that qualifies preschools and daycares for ERCs is staffing challenges. These businesses often had issues filling open positions, which decreased the number of client families they could serve. This challenge ultimately decreased 2020 and 2021 revenue.

Transportation companies:

Transportation companies are leading qualifiers for ERCs for three reasons. Firstly, they had to shut down fully or partially at the beginning of the pandemic. Secondly, they needed to reduce their customer capacity to comply with social distancing measures. Third, transportation companies have seen dramatic losses in 2020 and 2021 revenue. The loss in revenue comes from the above factors, but also as a result of event cancellations in 2020 and 2021. May transportation companies transport customers to and from large group gatherings and events. Another reason for loss of revenue is often the hesitancy of customers to use transportation due to pandemic safety concerns.

Want more information about ERC eligibility? Download our decision tree.