In an effort to help businesses get back on their feet financially, the federal government has created the Employee Retention Credit (ERC). By taking advantage of this incentive, many employers are able to receive a significant return on their payroll taxes. But what specifically is the ERC, and why should employers collect their credit today?
The ERC is a tax credit program implemented by the Coronavirus Aid, Relief and Economic Security (CARES) Act in 2020. It aims to incentivize businesses to keep their workers employed despite suffering financial hardships due to the COVID-19 pandemic. The credit is available to employers, from March 13th, 2020 through December 2021, who have experienced a full or partial suspension of business operations due to government orders due to the virus, or who have experienced a 50% or greater reduction in gross receipts when compared to the same prior calendar quarter.
If you meet the criteria and are an eligible employer, you could receive a tax credit of up to $26,000 per employee. For 2020, the maximum credit amount is $5,000 per employee for the calendar year and for 2021, it is $7,000 per employee per quarter. This applies to both full-time and part-time employees with no cap on the total amount of credit that can be claimed, keeping more money in employer’s pockets.
Luckily, claiming your credit is a pretty straightforward process. All you need to do is follow these 3 simple steps:
To be eligible for the ERC, you must meet all of the requirements specified in the CARES Act. These requirements may vary depending on the type and size of the business. Generally, businesses that had at least one full-time employee on March 14th, 2020 and experienced the required business interruption or reduction in gross receipts must qualify. Additionally, businesses must also meet certain other requirements such as being in operation during all of 2020, having 500 or fewer employees and not claiming PPP loans.
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Yes, you may still qualify for the ERC even if you had your Paycheck Protection Program (PPP) loans forgiven. To do so, you must demonstrate that you were affected by the business interruption or gross receipts reduction even after receiving your PPP loan. The ERC and PPP loans are two distinct programs and can exist simultaneously.
If You Were Told You Don’t Qualify for the ERC - Don’t Believe It!
Despite the seemingly specific ERC requirements, the government does have some flexibility in assisting eligible businesses. You may still be able to claim the credit even if you don’t meet all of the requirements. For instance, employers that did not meet the requirements at the beginning of the year may still qualify if the business experienced the required financial hardship after the beginning of 2020.
Although the Employee Retention Credit is a great incentive for businesses to stay afloat, there are some risks associated with taking advantage of this program. These include potential audits of tax returns, potential penalties, and potential employee complaints.
The most important risk to consider is an IRS audit, as this could result in a significant disruption to the business. For example, employers may be subject to examination if they take advantage of the ERC but did not meet the eligibility requirements. Fortunately, employers can minimize their risk by documenting all the requirements to make sure they qualify.
Additionally, employers could face potential penalties and fines if they are found to have misused the ERC. For example, employers could be found in violation if they use the ERC for purposes that go beyond its intent, such as using the funds for executive compensation or for business expansion.
Employees may also complain if they believe employers are taking advantage of the ERC without meeting the requirements. Employers should be sure to review the requirements carefully, both to ensure they are eligible and to provide evidence should any employee complaints arise.
If mistakes were made while claiming the ERC, the IRS may be willing to adjust the filing. For instance, the IRS is willing to reconsider returns that do not meet the requirements if employers can demonstrate that they met those requirements at the time of filing. Employers can also contact the IRS for assistance if they find mistakes after an ERC claim has been filed or need to amend or correct their original filing.
Is This ERC Opportunity Too Good To Be True? It’s Great! AND It’s True!
Receiving the ERC is a great opportunity for many businesses. When claiming your credit, you may be wondering: Is this too good to be true?
The answer is NO! The ERC opportunity is real, and the associated deductions can help businesses stay afloat during one of the toughest years in recent history.
Although there are risks associated with claiming the ERC, by adhering to the eligibility requirements and properly documenting them, employers can minimize those risks easily.
The ERC is a great incentive for businesses to stay afloat during this difficult and unprecedented pandemic. By claiming their ERC today, employers can receive credit for wages paid and experience significant payroll tax savings.
However, employers should be aware of the risks and make sure to meet all eligibility requirements for the ERC. Furthermore, employers should review their filing carefully to ensure that their records are accurate and in compliance with federal rules.
All in all, if you meet the eligibility requirements and take the necessary precautions to document your filing, the ERC opportunity is a great way to keep your business afloat during these difficult economic times. Take the time to review the requirements and collect your credit today!
