Employee Retention Credit Benefits For Construction Companies: Support Through COVID-19

The COVID-19 pandemic severely disrupted construction projects and spending. Work stoppages, supply chain issues, and delayed starts weighed on revenues. The Employee Retention Tax Credit provides vital relief, enabling contractors to defray payroll costs for retaining skilled staff through the downturn. This article explores how construction firms can capitalize on these credits.

Overview of the Employee Retention Tax Credit

The Employee Retention Credit (ERC) was established by the CARES Act in March 2020 to incentivize employer retention of staff through the pandemic. It offers:

  • A refundable 50% tax credit on up to $10,000 of eligible wages per employee for 2020. Rises to 70% of wages up to $10,000 per quarter in 2021.
  • Applies to qualified wages paid from March 13, 2020, through December 31, 2021.
  • Eligibility requires a 20% or greater decline in gross receipts compared to the same quarter in 2019.
  • Credits can be claimed against employer payroll taxes. Excess credits get refunded by the IRS.

This powerful credit helps construction companies offset labor costs during periods of COVID-19 disruption.

COVID-19 Impacts on Construction

The pandemic affected construction markedly:

  • Many projects were paused or canceled, especially in the early months of 2020.
  • Government-mandated shutdowns suspended work at many sites.
  • COVID-19 workplace protocols hindered productivity.
  • Supply chain issues caused materials shortages and delays.
  • New project starts slowed due to economic uncertainty.

These disruptions enable contractors to qualify for substantial retention credits.

Qualifying Criteria

Construction firms can qualify for the credit based on:

  1. Full or partial suspension of operations during any 2020/2021 quarter due to a COVID-19 governmental order.
  2. Experiencing a decline in gross receipts of more than 20% for a quarter compared to the same quarter in 2019.

Contractors frequently met both criteria amid project shutdowns and postponed starts shrinking revenues.

Documenting Eligibility

To substantiate eligibility and withstand IRS scrutiny, contractors should retain:

  • Government orders or notices requiring COVID-19-related project shutdowns or work stoppages.
  • Documentation of 2020/2021 project delays, cancellations, or interruptions tied to the pandemic.
  • Detailed gross receipts computations show a quarterly decline of over 20% versus the same 2019 quarter.
  • Quarterly financial statements comparing gross receipts for 2020/2021 quarters vs. 2019.
  • Project accounting records corroborating COVID-19 revenue declines.

Thorough documentation is imperative to validate eligibility upon audit.

Claiming the Credit

Qualified construction businesses claim the ERC on IRS Form 941 quarterly payroll tax filings:

  • Report qualified wage amounts paid to employees during eligible quarters.
  • Apply credit amounts to offset required employer Social Security tax deposits.
  • Request an advance payment from the IRS on Form 7200 for any excess credit above taxes due.
  • Reconcile any advance credits received on subsequent Form 941 filings.

Meticulous supporting computations should be retained. Amending prior 941s to claim newly qualified ERC amounts requires extensive substantiation.

Qualified Wage Rules

Complex requirements apply for the wages that qualify for the credit:

  • For employers with over 100 full-time employees, credits only apply to wages paid to staff not providing services.
  • Small employers (100 or fewer full-time staff) can claim credits on all employee wages, even for hours worked.
  • Credit calculations cannot include wages exceeding $10,000 for any one employee during a quarter.
  • Qualified health expenses can also be included.

Construction firms must apply these parameters carefully when computing ERC amounts.

Maximizing the Credit

Companies can take several steps to optimize their ERC benefit:

  • Review project timelines and financials to identify all quarters where eligibility criteria were met.
  • Assess COVID-19 impacts across the entire company to capture all suspensions and declines.
  • Classify status as a large or small employer correctly based on full-time employees.
  • Scrutinize payroll data to determine qualified wages paid during eligible quarters.
  • Claim credits on Form 941 promptly for all applicable quarters.
  • Amend prior Form 941s to claim newly qualified ERC amounts.
  • Prevent claiming duplicate credits for wages also covered by PPP loan forgiveness.

Proper compliance and planning enable maximizing this valuable relief.

Conclusion

COVID-19 severely disrupted construction activity. The generous ERC provides critical payroll relief to retain skilled trade labor through the downturn. Construction firms that face material revenue declines or work stoppages should thoroughly document eligibility, accurately calculate qualified wages, and claim all entitled credits. Careful execution can provide substantial assistance with labor costs to help construction companies navigate the pandemic.

Frequently Asked Questions

Q: How can construction companies qualify for the ERC?

A: By experiencing COVID-19-related full or partial work stoppages, or meeting gross receipts decline thresholds compared to 2019 quarters.

Q: What construction disruptions support ERC eligibility?

A: Government-mandated shutdowns, project delays/cancellations, supply chain issues causing job site interruptions, and reduced new project starts.

Q: What records should construction firms retain?

A: Government orders, project timelines, gross receipts calculations, financial statements, and documentation of reduced activity.

Q: How are qualified wages determined for construction companies?

A: Rules differ based on number of full-time employees. Large employers can only claim non-working staff wages, while small employers can also claim working staff wages.

Q: How is the credit claimed by contractors?

A: Qualified wages and health costs are reported on IRS Form 941 payroll tax returns, either quarterly or via amended returns. Credits offset taxes owed, and excess credits are refunded.

Helpful ERC Resources:

  • AGC Guide to COVID Relief for Construction
  • IRS Form 941 Instructions – Claiming Employee Retention Credits
  • AICPA COVID-19 Resources for Construction Firms
  • Guidance on Substantiating and Documenting Credits (U.S. Chamber)
  • ABC COVID-19 Pandemic Recovery Resources

Consult a tax advisor on eligibility, documentation, and claiming of credits based on COVID-19 construction industry impacts.

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