The Truth about the Employee Retention Credit
“Get up to $26,000 per employee!! (???)”
It’s all over the internet … it’s all over the radio … it’ in your e-mail and in your snail mail … it’s on your Facebook feed …
What is it? It is the Employee Retention Tax Credit and was designed to provide a refundable employment tax credit to businesses that retained their employees through the COVID-19 pandemic.
During 2020 and into 2021 as COVID was smacking small businesses around the federal government stepped in to help in a number of ways through a number of programs. There were three stimulus packages, the Paycheck Protection Program (PPP), and Economic Impact Disaster Loans (EIDL).
There was also the Employee Retention Tax Credit (ERC) allowing employers to claim a credit to help pay employment taxes – basically making it less costly to keep that staff during the pandemic. If you are a business owner you have no doubt heard of this credit, but chances are you don’t know much about it.
Well, now is the time to find out if this credit can help your business …
Before I go into a few of the details of the credit I want to assure you that you have time.
Per the IRC guidelines to claim any credit available for 2020 you must submit your claim by April 2024. For claims on 2021 wages you must file by April 2025.
Now – do you qualify? Thanks to the ever changing rules surrounding COVID there have been a number of changes, amendments, etc to the qualifications. The IRS has a good resource on their website at www.irs.gov – search in the top right corner “Employee Retention Credit – 2020 vs 2021” and a nice chart appears showing each of the acts affecting the ERC with brief explanations.
The CARES Act of March 2020 presented the initial eligibility requirements:
“Employer must experience:
-full or partial suspension of operations due to government order due to COVID-19 during any quarter,
or
-significant decline in gross receipts (beginning when gross receipts are less than 50% of gross receipts for the same calendar quarter in 2019 and ending in the first calendar quarter after the calendar quarter in which gross receipts are greater than 80 percent of gross receipts for the same calendar quarter in 2019)“
The credit was limited to $5,000 per employee for 2020 wages. A key note here – wages paid to the owner and most of their relatives do not qualify for ERC.
If you are a ‘mom and pop shop’ and you are the only employees you can forget about this credit for you … but keep reading because maybe it can help some of your friends.
The Relief Act of 2021 expanded the credit into 2021 and changed the gross receipts test for the 2021 credit:
-For calendar quarters in 2021, amended decline in gross receipts to be defined as quarter where gross receipts are less than 80% of the same quarter in 2019.
-For calendar quarters in 2021, added an alternative quarter election rule giving employers ability to look at prior calendar quarter and compare to the same calendar quarter in 2019 to determine whether there was a decline in gross receipts.
-Provided a rule for employers not existence in 2019 to allow employers that were not in existence in 2019 to determine whether there was a decline in gross receipts by comparing the calendar quarter in 2021 to its gross receipts to the same calendar quarter in 2020.”
It also allowed 2021 to 2020 comparisons for companies not in existence in 2019 – thereby letting more businesses qualify. Most importantly it increased the maximum credit to $7,000 per employee, per quarter, for up to 3 quarters of 2021 – that’s $21,000 per employee for 2021.
So, if you take the potential $5k per employee for 2020 and the $21k per employee for 2021 this brings you to the $26,000 per employee – that you’re seeing everywhere.
So, how do we get the money?!
Have you ever heard that old adage, “believe none of what you hear and only half of what you see?” While some businesses can absolutely be eligible for piles of money, here are some facts based on the above information:
1) Not every business qualifies for ERC
2) It is unlikely you can claim the entire $26k for every one of your employees
3) Not all impacts from COVID qualify
4) Although you can get PPP and ERC, claiming the PPP does change the way your ERC is calculated
There is help out there available to you.
Be aware, though, that most of the companies offering this assistance are collecting anywhere from 15% to 30% of your credit … and sometimes up front. According to industry experts the IRS is taking 9-12 months to process a claim. It’s important to note that you could be footing the bill in the meantime. That being said the help is invaluable. Proving and documenting your eligibility is essential and identifying the quarters you can qualify for and calculating the eligible wages is complex.
If you want to learn more visit the IRS page above, speak to your payroll provider, and get your tax adviser in the loop. Payroll records must be analyzed, revenue figures reviewed, and the impact of COVID-19 on your specific business are all parts of the process.
LCI Taxes is now offering to review your company situation to see if you may be eligible for the Employee Retention Credit
We are not one of these national marketing companies that just wants your money, though. We will not advise you to take any credit we don’t believe you are eligible for or that we don’t believe you can properly substantiate that eligibility for.
386-586-3976
Info@lcitaxes.com