Employee Retention Credit (ERC): Fact Versus Fiction?

So you have learned enough about employee retention credit and are planning to take advantage of this covid relief program. Though you may have understood the definition of ERC Credit and its benefits to your small business, there are still so many fictions about it that you must clarify. Therefore, we are here with today's topic that will explain ERC Facts Versus Fiction. After going through this whole piece, you can make a profound decision on whether or not you should apply for ERC credit. So, without any more side traction, let's start with the topic immediately.

The Fiction: Your business is required to have at least a 50% drop in its gross revenue

The Fact: There is no denying that the ERC credit qualifying ratio for businesses was a 50% drop in their gross receipts before. However, with the changing situations during epidemics, the Consolidated Appropriations Act (CAA) changed the qualifying ratio from 50% to 20% in 2021. Now all businesses come under this scheme regardless of whether they were open throughout the pandemic.

Furthermore, the IRS has issued its 2021-23 Bulletin to offer details on how businesses can choose an alternative quarter to apply easily for the credit. Therefore, as an employer, you can evaluate a quarter in the past where your business faced a gross receipt loss of 20% or more.

The final amendment of 2021-23 has enabled a safer procedure for businesses to apply for credit. However, there have been a few exceptions, excluding certain gross receipts. These receipts could include the amounts your business received under PPP loan forgiveness, restaurant revitalization grants, and shuttered venue operator grants.

So if you think your business will qualify for the ERC credit, you must prove first that your company was partially or completely shut during a specific quarter. Also, there was a great amount of decline in your gross receipts.

The Fiction: If your business launched in 2019, it would not qualify for the ERC credit

The Fact: It doesn't matter if your business was launched in 2019 to qualify for the ERC credit. If you had just launched your business in 2019, you would use the quarter as the base for qualifying when you started running your operations. You must show the revenue declines in that particular quarter to become eligible for the credit. Also, your business will have to be operating for the entire year.

Suppose you launched your business operations in the second quarter of 2019; the scheme will consider that period as the base for eligibility. Therefore, you must consider that period in the first or second quarter of the next year to show the decline in your receipts.

If you find it challenging to determine ERC credit eligibility independently, you can take assistance from Claim ERC Credit specialists. They can help you maximize your ERC claim benefits by helping you process your application efficiently.

The Fiction: If your business has participated in the Payroll Protection Program (PPP), it will no longer be eligible for ERC credit

The Fact: At one point, it was true that your business could not qualify for ERC credit if it already took advantage of the PPP program. Until the Emergency Coronavirus Relief Act of 2020, anyone participating in the Payroll Protection Program was disqualified. However, the federal government made some amendments to this Act. After that, from March 27, 2020, this Act changed the eligibility criteria for ERC and PPP.

If wages are counted as payroll costs to receive PPP loan forgiveness, they will not be eligible for ERC. The ERC will still be available for all additional qualifying earnings except PPC forgiven amount.

The Fiction: Your business will qualify only if it was shut down completely during pandemic situations

The Fact: Your business does qualify if its operations were entirely shut down due to pandemics. However, this is not the only eligibility criteria. Other additional factors involve:

Limited operating hours.

A breakdown in the supply chain.

A severe drop in sales.

A partial shutdown is one or a combination of qualifying circumstances.

A partial suspension does not apply to voluntarily altered business hours. You are qualified even if your company is open, but you must operate during fewer hours due to regulations. Hours must be limited due to a local, state, or federal government directive.

The Fiction: If you did not file for the ERC credit between 2020-21, you will no longer have the opportunity to claim it

The Fact: Businesses that meet the requirements can apply for retroactive ERC credit even in 2023. All you need to do is file an amended annexure 941-X. The IRS permits adjusting and requesting a refund up to three years after the original quarter.

The credit enables you to pay wages to employees who aren't working due to the epidemic because of how the ERC interprets wages. You can claim a tax refund if you compensate workers who missed work due to a government shutdown order or a drop in your business's revenue.

In The Summary

We hope we have clarified all the fiction that might have misled you. If your business qualifies for the ERC credit, you can claim the credits for the quarters of 2020-21. Claim ERC Credit can help you analyze your business eligibility criteria to file for ERC credit. You can also contact them for an ERC ebook to acquire guidance on how to claim ERC credit in 2023.

FAQs

How will your business benefit from ERC?

The government establishes ERC credit to help your business sustain employees on the regular payroll. You can also use it to manage your operational expenses.

Who funds Employee Retention Credit?

The United States Government has established an ERC credit scheme to provide them relief for the operational damages dealt during the pandemics of Covid 19.