2020 was a tough year, especially for the complex and large-scale nature of the construction industry. While some areas of the country chose this time to break ground and complete construction projects, many others were halted completely. As financial professionals in the construction industry, we know that when the wheels on your heavy machinery stop turning, you are losing countless dollars. Often at a rate of thousands of dollars per day for overhead costs.
One of the biggest costs for construction companies is their payroll. More than most other small businesses, this cost is often large scale and is paid hourly or on a salary base depending on positions. Sometimes on-site activity is reduced to a net zero, as has been the case throughout much of the economic hardship that has resulted from the COVID-19 pandemic.
The IRS is now issuing revised relief to construction companies who were able to keep their employees retained on payroll in 2020 and 2021 through Employee Retention Credits (ERC). These tax credits were created through the Coronavirus Aid and Economic Relief (CARES) Act , and are now extended and expanded under American Rescue Plan Act.
Here’s what you need to know about the ERC and how you can determine whether your construction company can benefit from the program:
For your construction company to reap the benefits of the ERC, there are a few qualifying stipulations. Luckily, most construction companies will likely qualify so long as they kept some employees retained on their payroll in 2020 and 2021.
To qualify for the ERC, your operations must have been fully or partially shut down, either by government order or reduction in business OR your gross receipts must have fallen below 50% quarter-over-quarter from 2019 to 2020, and 80% below from 2019 to 2021. If your business was started in 2020, you can use the corresponding quarters for 2020 to 2021.
You can claim up to $5,000 for each full-time employee you retained on your payroll from March 13th to December 31st of 2020 for 2020, and up to $28,000 for each retained employee for all quarters of 2021. You can claim your ERC either through a tax refund or by reducing your payroll tax payments. If your ERC will exceed your payroll taxes, you can request a direct refund from the IRS.
It’s important to note that your business is still eligible for the ERC even if you received a PPC loan. The only stipulation here is that you cannot claim wages that were filed as payroll costs for your PPC loan forgiveness.
The COVID-19 pandemic has brought tough economic times to many businesses in the construction industry. If your business has been negatively impacted but you opted to retain your employees despite the reduced work, then you can now be paid back. You can use your ERC for any facet of your business, not just payroll. You can use it to update your heavy equipment fleet, or for marketing your business to prospective customers.
Don’t delay receiving your ERC any longer. As a client accounting services firm Allen Construction Group is ready to assist if you need help filing for your immediate returns, or figuring out how much to reduce your payroll tax payment. We bring close to two decades of direct financial experience inside the construction industry. We invite you to utilize our direct experience to prepare your financial statements, improve or outsource your bookkeeping, or for financial advisory services. Schedule a consultation today.