If your company is part of a controlled group, you may still be eligible for the Employee Retention Credit (ERC). Being a part of an aggregated group of companies does not disqualify you as an eligible employer – it simply changes the rules.
Who do the aggregation rules apply to?
Three categories of aggregated companies fall under the special controlled group rules:
- Parent-Subsidy Controlled Groups
- Brother-Sister Controlled Groups
- Combined Groups of Corporations
Existing within any of these corporate entity relationships will automatically trigger the aggregation rules and impact your credit amount and utilization.
Aggregate rules and the ERC
If your company falls into one of the categories above, you and all other group members will be treated as a single employer when applying the ERC rules for eligibility and qualified wages.
In other words, you must consider all companies collectively to determine if the group, as a whole, meets the threshold for an eligible employer. Similarly, thresholds for qualified wages will be based upon the combined full-time employee count across all aggregated companies.
As a reminder, an Eligible Employer must have:
- Experienced fully or partially suspended business operations due to governmental orders related to COVID-19; or
- Experienced a significant decline in gross receipts
Eligible Employers who still meet the criteria for the ERC under the aggregation rules will divide the resulting credit among other members of the group proportionally to each member’s share of the qualified wages.
The bottom line
It is still possible to qualify for and claim the ERC as part of a controlled group, but you need to understand the rules changes. Much like other tax credits, controlled groups will be considered a single employer for all credit thresholds and utilization requirements – this will impact employer eligibility, credit calculations, and even your credit utilization.