Is the EIDL Included in Gross Receipts for the Employee Retention Credit?

Gross income is a key factor when it comes to determining eligibility for the Employee Retention Credit (ERC). According to sections 448 (c) and 6033 of the Internal Revenue Code, gross income includes all forms of income, including tax-exempt income. To help companies save time, it is important to understand the process of calculating ERC gross revenues. The revenue process establishes a safe haven that allows companies to exclude certain grants and forgiveness amounts from gross income when calculating ERC eligibility for struggling employers. The Internal Revenue Service (IRS) has recently updated its income procedures, which could affect whether or not a taxpayer meets the gross income test.

If you received a loan from the Economic Injury Disaster Loan (EIDL), you can apply for the ERC on the salaries paid with the EIDL money. It is essential to understand how gross income is calculated, as an employer may be eligible for the ERC if their gross income for a calendar quarter decreases by a certain percentage compared to a previous calendar quarter. If an employer previously determined that they did not qualify for the ERC by including Paycheck Protection Program (PPP) loan forgiveness, Shuttered Venue Operators Grant (SVOG) funds, or Restaurant Revitalization Fund (RRF) grants, they should recalculate the decrease in their gross income excluding these amounts. On Tuesday, the IRS issued a safe harbor that allows employers to exclude certain amounts received from other financial aid programs due to the coronavirus when determining if they qualify for the ERC based on a decrease in gross income (Rev. Rul.

2021-9).Gross income is defined as all income received or accumulated (according to the entity's accounting system) from any source, including sales of products or services, interest, dividends, rents, royalties, fees or commissions, less refunds and subsidies. When evaluating gross income to qualify for the ERC, a Safe Harbor is offered that allows these three loans to be excluded. The various aid bills included many financial assistance programs, but not all of these funds qualify to exclude gross income when determining ERC eligibility. The employer chooses to use the safe harbor by excluding from its gross income the amounts received through the coronavirus relief programs listed above when determining eligibility to apply for the ERC on their employment tax return or on their adjusted employment tax return for that calendar quarter (or, in the case of employers who file employment tax returns annually, for the year that includes the calendar quarter).If a qualifying employer's gross income has been dramatically reduced, they may be eligible for the employee retention credit. Gross revenues are the total sums your business receives from all sources during the tax year, minus cost of goods sold and deductible costs.

When certain amounts are excluded from gross income, it can result in a decrease of more than 20%, which makes them eligible for the ERC. For purposes of calculating eligibility for the ERC, “the gross income of an employer that is not exempt from taxes” has the same definition as in section 448 (c) of the Internal Revenue Code. In general, gross revenues for purposes of Section 448 (c) of the IRC include total sales, net of returns and allowances, and all amounts received for services. Understanding how to calculate gross revenues can help employers determine if they are eligible for the Employee Retention Credit.

Zachary Kadner
Zachary Kadner

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