What are “Gross Receipts” for an Employer other than a Tax-Exempt Organization?

When it comes to determining eligibility for various tax credits and deductions, including the Employee Retention Credit, “gross receipts” is a key term. For employers that are not tax-exempt organizations, understanding what qualifies as gross receipts is crucial.

Gross receipts generally include all revenue in whatever form received or accrued from whatever source, including sales of products or services, interest, dividends, rents, royalties, and fees. Gross receipts are generally considered “total income” or “gross income” for tax purposes.

However, there are certain exclusions from gross receipts, such as the proceeds from loans and the sale of assets that are not considered inventory. In addition, refunds and returns are generally deducted from gross receipts. Other adjustments may also be necessary depending on the type of business and the applicable tax rules.

It is important to note that gross receipts are calculated based on the employer’s accounting method. Generally, employers can use either the cash or accrual method of accounting, but must use the same method consistently from year to year.

For the Employee Retention Credit, employers must compare their gross receipts for a calendar quarter in 2020 or 2021 to the same quarter in 2019 to determine if there was a significant decline in gross receipts. If gross receipts for the 2020 or 2021 quarter are less than 80% of gross receipts for the same quarter in 2019, the employer may be eligible for the credit.

It is important for employers to keep accurate records of their gross receipts and to consult with a tax professional if there is any uncertainty about what should be included or excluded from gross receipts. Properly calculating gross receipts can make the difference between eligibility for tax credits and deductions and potentially costly penalties for noncompliance.