Employment Retention Credit for Manufacturing

Employment Retention Credit for Manufacturing

It comes as no surprise that the pandemic has disrupted the supply chain, which in turn has impaired manufacturing businesses. According to the U.S. Census Bureau survey, manufacturing had the highest reported domestic supplier delays due to supply chain disruptions. In 2020, the Employee Retention Credit (ERC) was added to the Coronavirus Aid, Relief, and Economic Security (CARES) Act to help businesses who were impacted by the COVID-19 pandemic. The refundable payroll tax credit can provide significant refunds to eligible businesses. Under the Consolidated Appropriations Act of 2021, business owners who kept their employees on payroll during the pandemic can reap the benefits as well. Manufacturers can take advantage of the ERC credit along with the Paycheck Protection Program (PPP) for the 2021 tax year.  

What Impacts Qualify for the Employee Retention Credit? 

Manufacturing companies may be able to claim the credit if they were impacted during the pandemic in one or more of the following ways: 

  • Partial or full shutdown due to government mandate 
  • Decrease in products or services outputs 
  • Interruption to your normal business operations 
  • Supply chain delays 
  • Loss in revenue 
  • Capacity limitations due to social distancing requirements 
  • Inability to work with domestic or international vendors 

Debunking Myths Related to the Employee Retention Credit 

Although numerous manufacturing companies qualify for ERC, they prematurely disqualify themselves by not providing sufficient document claims or assume they would not qualify. Here are a few myths of why businesses might not think they would qualify: 

  • I am not eligible because I received a PPP loan.
    • Originally, that was the case under the CARES Act. However, the Consolidated Appropriations Act, 2021 amended the PPP program, allowing for ERC eligibility regardless of receiving the PPP loan. Payroll costs used to calculate PPP loan forgiveness cannot be used to also determine ERC. However, wages that are not used as part of the PPP calculation can be used to claim ERC.   
  • My business was not considered essential. 
  • If your business experienced any of the disruptions we listed above, you may qualify for ERC. It no longer matters whether your business was deemed essential or non-essential at the start of the pandemic. 

How Can the Employee Retention Credit Benefit Manufacturers? 

Manufacturing companies should evaluate if they are eligible for ERC, regardless of their size. The claim credits could be worth thousands of dollars per employee and can help offset payroll taxes. Manufacturing companies can use this money to repair supply chain issues, hire employees, and revive relationships with vendors.  

If you have any questions about how your manufacturing company can apply for ERC, please contact your BSSF advisor.  

Posted In: Manufacturing & Distribution | Insights

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