The employee retention tax credit (ERTC) provides relief for many businesses to help offset some of the profit loss due to keeping employees during the COVID-19 pandemic and creating cash flow to pay wages to their employees. While many dealerships are experiencing a boom in both used and new car sales, it’s possible to still qualify for the ERTC if your dealership was ordered to shut down in-person retail operations. Dealers who were able to continue to sell cars online during this shutdown were considered partially affected.
The employee retention tax credit encourages businesses to keep employees on their payroll even if the pandemic impacts them. Eligible businesses can take the credit for qualified wages and health insurance premiums through December 31, 2021.*
*Note: We are closely monitoring H.R. 3684, known as the Infrastructure Investment and Jobs Act. As of the publication of this article, the infrastructure bill was approved by the Senate and now goes to the House of Representatives for consideration. The infrastructure bill would terminate the employee retention credit early, making wages paid after September 30, 2021, ineligible for the credit.
The credit is calculated based on qualified wages (including healthcare premium) paid during an affected period. The maximum amounts are as follows:
|2020 ERTC||2021 ERTC|
|Credit Amount||50% of qualified wages||70% of qualified wages|
|Maximum Qualified Wages||$10,000 per employee per year||$10,000 per employee per quarter|
|Maximum Credit Amount||$5,000 per employee per year||$7,000 per employee per quarter|
The qualification requirements for the 2020 and 2021 calendar years vary due to the different laws created, then extended and modified.
Dealerships must show that jobs were affected by the shutdown orders, and these employees were paid during times they weren’t working. Or, if your dealership employs fewer than 100 full-time employees, any wages paid would qualify. For the 2020 calendar year, if your dealership experienced a gross decline of receipts of greater than 50 percent compared to the same quarter in the previous year, your business could qualify.
The 2021 tax year qualifications allow for a gross decline of receipts of 20 percent compared to the same quarter of the previous year. Additionally, suppose you obtained Paycheck Protection Program (PPP) funding. In that case, you may also be eligible for the ERTC, including 2020 wages that may not have previously qualified as long as they weren’t paid for by PPP funding. Dealerships can file a correction to the 2020 tax filings if the new rules open up previously unavailable opportunities.
There are some nuances in the program, though. For example, some dealerships have concluded that the partial disruption in the supply chain could qualify them for the ERTC, even though IRS guidance is unclear on that point. Speaking with a qualified tax professional is a great place to start.
Note: It’s important you speak with a trusted tax advisory. Some consultants are approaching car dealerships claiming every dealership is eligible for the credit when the credit should be reviewed on a case-by-case basis.
Qualifying for the employee retention credit based on supplier issues is a controversial and complex matter. Unclear guidance leaves a lot of questions and uncertainty. We will continue to monitor guidance as it is issued and provide clarity as we know more.
Our team of tax professionals is available to answer any questions your team may have on the employee retention tax credit, including whether your dealership may qualify for 2020 or 2021 credits.
Please contact John Comunale for more information via our online contact form.
Councilor, Buchanan & Mitchell (CBM) is a professional services firm delivering tax, accounting and business advisory expertise throughout the Mid-Atlantic region from offices in Bethesda, MD and Washington, DC.