The Power of ERC for Dealerships: A Comprehensive Guide to Claiming Your Credit

The Employee Retention Credit (ERC) offers dealerships the opportunity for substantial tax savings. Recent legislative changes have expanded eligibility and extended this tax credit to cover 2020and 2021. As a result, dealerships that may not have qualified previously could now claim thousands of dollars in refunds for prior years.

This comprehensive guide will walk you through the latest ERC qualifications, calculations, and filing procedures soyour dealership can take full advantage of this powerful program and maximize your tax credit refund.

Overview of the ERC Program

The Employee Retention Credit (ERC) program was originally introduced back in 2020 to help companies keep workers employed during COVID shutdowns and slowdowns. Since then, it's been expanded and extended so that more dealerships can take advantage of it now.

In a nutshell, it works like this:

• Dealerships can get a refundable tax credit equal to half an employee's wages, up to $10K per employee per quarter. So for 2020 and 2021, they could potentially get back up to 5K per employee.
• To qualify, the dealership needs to show meaningful declines in revenue during the quarter or that they were partially or fully closed due togovernment COVID orders.

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So in essence, it puts cash back into the pockets of dealerships who managed to hold onto their staff amidst COVIDuncertainty. And with the program extensions, even more dealerships couldbenefit. It's a nice cushion that helps ensure workers don't end up laid off.

Key Eligibility Requirements

There are a few key requirements for dealerships to qualify for the ERC:

• Fewer than 500 employees -Dealerships with 500 or more full-time employees do not qualify. Part-time employee hours count towards this threshold.
• Experienced economic hardship -This is defined as a 20% or greater decline in gross receipts in a 2020 or 2021quarter compared to the same quarter in 2019.
• Full or partial suspension ofoperations - If a government order fully or partially suspended the dealership's operations for any length of time in 2020-2021.

In addition to these baselinequalifications, there are some nuances in determining employee eligibility,qualified wage amounts, and maximum credit calculations. But the majority of dealerships with under 500 employees are likely eligible in some capacity.

Retroactive Claim Opportunity

One of the biggest benefits of the ERC isthat it can be claimed retroactively for 2020 and 2021. The statute of limitations for amending tax returns is generally 3 years. So dealerships canstill file amended returns to claim the credit for wages paid in 2020 or 2021.

The deadline for calendar year tax payers is as follows:

• 2020 ERC - File amended return by12/31/2023
• 2021 ERC - File amended return by 12/31/2024

Claiming the credit retro actively requires filing IRS Form 941-X to amend originally filed 941 payroll taxreturns. This can be a tedious process, which is why many dealerships choose to work with specialized ERC experts to handle claim calculations and tax filing.

Potential Credit Amounts

The amount of ERC savings for each dealership depends on factors like:

• Number of W-2 employees
• Average annual wages per employee
• Decline in gross receipts during eligible quarters

But to provide a general idea, here is an example breakdown of potential credit amounts:

25 employee dealership

• Avg annual wages: $50,000
• Max per employee: $5,000
• Total potential credit = $125,000

100 employee dealership

• Avg wages: $50,000
• Max per employee: $5,000
• Total potential credit = $500,000

So for mid-size and larger dealerships,the total credit can easily reach six or seven figures. When combined with taxrefund interest and opportunities to deduct professional fees, the net financial impact is very significant.

Current and Future Credit Opportunities

While opportunities exist to claim the ERC retro actively for 2020-2021, dealerships can also take advantage of advanced credits for current and future tax years. The credit has been extended through Q1 2023, allowing dealerships to file for advance credits on quarterly payroll tax returns:

• Q3 & Q4 2022 - File Form 941
• Q1 2023 - File Form 941

To qualify for current or future quarters, the same eligibility rules apply regarding number of employees,declines in gross receipts, and suspended operations. Advanced credit claimsdon't require amending past returns. But they do allow dealerships to access savings faster in the current and upcoming tax years.

Common ERC Misconceptions

Given the complex and evolving nature of the ERC, some dealerships incorrectly assume they are not eligible for the credit. Here are some of the most common misconceptions:

• A full shutdown is not required to qualify. Even a partial suspension - like capacity restrictions, limited hours,or reduced operations - meets the threshold for the credit in 2020-2021.
• Taking Paycheck Protection Program (PPP) loans or other COVID-19 relief loans does NOT impact ERC eligibility. The only stipulation is wages paid with PPP funds cannot be used to calculate ERC amounts.
• The decline in gross receipts eligibility test is done on a quarter-by-quarter basis. So even if annual or subsequent revenue recovered, a dealership can still qualify for quarters with20%+ declines.
• As discussed above, amended returns can still be filed to claim credits for 2020 and 2021 wages. And credits can be claimed in advance through Q1 2023. So it is definitely not toolate to act.

Best Practices for Maximizing Credits

With the prevalence of misinformation, it is understandable why some dealerships incorrectly assume they cannot claim thecredit. That is why it is so valuable to consult ERC tax specialists who stay on top of the latest regulations and can accurately assess eligibility.

Claiming the ERC requires documentingeligibility and calculating qualifying wages and credits for each quarter. Key documentation includes:

• Gross receipts
• Suspended operations
• Employment counts
• Qualified wages

This documentation is used to calculate the maximum credit amount for each eligible quarter. The computations involve wage caps, FICA tax limitations, and other regulations that specialty firms are experts in applying.

To ensure your dealership claims every dollar possible, it is wise to follow some best practices:

• Consult tax specialists
• Move quickly
• Review affiliate groups
• Optimize advance credits
• Deduct professional fees

Following these best practices will helpdealerships across the country access the full savings potential of this valuable tax credit.

Frequently Asked Questions (FAQs)

Here are answers to some common questionswe get on navigating ERC for dealerships:

Do I Still Qualify If IStayed Fully Open?

Yes - even if you stayed open, COVIDorder restrictions or revenue declines likely still make you eligible.Significant credits can be claimed even without a full closure.

What If My Accountant Said I Don’t Qualify?

Unfortunately bad advice from advisors unfamiliar with ERC is very common - leading dealerships to miss out onmillions in available credits. It’s wise to get a second opinion from an ERCspecialist.

Can I Claim ERC forMultiple Locations?

Absolutely. Large dealer groups cansecure credits across all locations that meet eligibility rules. Just be sureto manage headcounts properly under the per-entity employee caps.

What If I Already FiledTax Returns Without Credits?

No problem! You can still amendpreviously filed Form 941 returns to claim credits owed for prior quarters. TheERC program allows amendments going back to Q1 2020.

When Is the Deadline toClaim Credits?

Dealerships have 3 years from the filingdeadline of each quarter’s payroll tax return to claim credits for thatquarter. So for 2020 returns, amendments can be filed as late as Q1 2024

Next Steps

With the ability to file amended returnsback to 2020 and claim advance credits through 2023, dealerships have optionswhen leveraging the ERC. There are pros and cons to each approach:

Amended Returns

Pros:

• Access larger retroactive credits
• Opportunity to deduct professional fees

Cons:

• More complex filing process
• Typically longer wait for refunds

Advanced Credits

Pros:

• Streamlined filing with existing 941 payroll returns
• Faster access to cash flow relief

‍Cons:

• Lower credit amounts in current/future periods
• No professional fee deductions

Ideally, dealerships should pursue acombined approach:

1. File for maximum amended return credits in 2020-2021
2. If eligible, claim advanced credits on 941s for 2022-2023

This allows you to unlock substantialretroactive savings, while also benefiting from any current/future periodrelief you qualify for. The key is acting right away before amended returndeadlines expire. Credits can always be claimed in advance later on if futureeligibility exists. But retroactive savings can disappear forever afterstatutes of limitations pass.

Conclusion

The ERC provides dealerships of all sizesthe opportunity to leverage unprecedented levels of tax credits and cash flowrelief. But the temporary nature of the program, complex eligibility criteria,amended filing requirements, and advancing deadlines make it imperative tostart the ERC process immediately.

Hopefully this guide provided acomprehensive overview of the key considerations and best practices formaximizing your dealership's ERC potential.

The next step is to consult specializedERC experts who can provide complimentary eligibility assessments and creditestimates at no cost or obligation. There is no reason to leave potential sevenfigure savings on the table. Now is the time to take action and finallycapitalize on the ERC program before credits disappear for good.

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