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Gross Revenue Decline

Eligible Employer

The employee retention credit is available only to employers that are eligible employers. Section 2301(c)(2)(A) of the CARES Act defines the term “eligible employer” as any employer carrying on a trade or business during calendar year 2020, and, with respect to any calendar quarter, for which (1) the operation of the trade or business carried on during calendar year 2020 is fully or partially suspended due to orders from an appropriate governmental authority limiting commerce, travel, or group meetings (for commercial, social, religious, or other purposes) due to COVID-19, or (2) such calendar quarter is within the period in which the employer had a significant decline in gross receipts, as described in section 2301(c)(2)(B) of the CARES Act. 

Government Order

Question 10: What “orders from an appropriate governmental authority” may be taken into account by an employer for purposes of determining eligibility for the employee retention credit?


Answer 10: Orders, proclamations, or decrees from the Federal government or any State or local government may be taken into account by an employer as “orders from an appropriate governmental authority” only if they limit “commerce, travel, or group meetings (for commercial, social, religious, or other purposes) due to the coronavirus disease 2019 (COVID-19)” and relate to the suspension of an employer’s operation of its trade or business. Orders that are not from the Federal government must be from a State or local government that has jurisdiction over the employer’s operations. These orders are referred to as “governmental orders.” Whether orders, proclamations or decrees are governmental orders is determined without regard to the level of enforcement of the governmental order.

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Supply Chain Disruption

Notice 2021-20 provides a way to qualify even if your business was not directly subject to restrictions. It provides an example that if your supplier is subject to various United States Governmental restrictions, and that results in you not receiving your supplies or inventory in a timely manner, that you would be deemed an eligible employer.

According to the United States Government Accountability Office, over 2 billion USD has been provided to those in the manufacturing, transportation, and distribution industries for 2020 ERC. Source These are the pillars to a successful supply chain. 


Additional examples can be found in the July 21, 2023 Memorandum.


The memo references the notices, and explains that extensive details will be needed to substantiate your impact.

Gross Revenue Decline

The IRS has described a decrease in revenue to be 50% when comparing 2020 to 2019, and 20% when comparing 2021 to 2019. During 2020 the gross decline ends following the quarter that you achieve at least 80% of your revenue in 2019 or December 31st 2020, whichever comes first.

For 2021 credits you also have the ability to use the immediate preceding quarter to qualify.

For example, if Q4 2020 vs Q4 2019 shows a 20% decrease, then you would be an eligible employer for Q1 2021 using this rule. Furthermore, if Q1 2021 vs Q1 2019 shows a 20% decrease, then you would be an eligible employer for both Q1 2021 and Q2 2021.

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Full or Partial Suspension

If an employer's workplace is closed due to a governmental order for certain purposes, but the employer's workplace may remain open for other limited purposes, the employer's operations would be considered to be partially suspended if, under the facts and circumstances, the operations that are closed are more than a nominal portion of its business operations and cannot be performed remotely in a comparable manner.

If all, or all but a nominal portion, of an employer's business operations may continue, but the operations are subject to modification due to a governmental order (for example, to satisfy distancing requirements), such a modification of operations is considered to be a partial suspension of business operations due to a governmental order if the modification required by the governmental order has more than a nominal effect on the business operations under the facts and circumstances.

A governmental order that results in a reduction in an employer's ability to provide goods or services in the normal course of the employer's business of not less than 10 percent will be deemed to have a nominal effect on the employer's business operations.

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