Filing an ERTC claim requires extensive knowledge of the latest rules, and you’ll also have to submit detailed records to the Internal Revenue Service about payroll records, expenses, and more. Any mistake can lead to an audit, penalties, fees, and having to pay back funds.
Here are some of the most common errors business owners make when filing for the Employee Retention Tax Credit (ERTC).
A Brief Overview of the ERTC
The Employee Retention Tax Credit, also called the Employee Retention Credit (ERC), is a tax credit designed to provide refunds for businesses that kept employees on staff during the pandemic. To qualify, companies must have suffered a significant decline in gross revenue or an interruption in operations in 2020 and 2021. The amount of the tax credit is up to $26,000 per employee.
5 Errors Businesses Commonly Make When Filing an ERTC Claim
Before filing an ERTC claim or dismissing yourself as ineligible, watch out for these common mistakes.
1. Thinking Your Business Is Not Eligible if Your PPP Loan Was Forgiven
As of 2021, businesses are eligible for the ERTC even if they received a PPP loan. The only stipulation is that the funds that were forgiven cannot be applied to ERTC if they were used to pay wages. However, PPP funds used for rent and other qualified business-related expenses do not count against your credit.
2. Avoiding Filing Because Your Business Was Not Shut Down
Remember, qualifying for the ERTC doesn’t require a shutdown in business. The two requirements are an either/or situation. Therefore, if you had a decline in revenue or your business was shut down, you can still qualify.
Further, your business could experience a partial shutdown to be eligible for ERTC funds. As long as a government mandate at the local, state, or federal level, disrupted your operations, you can claim funds.
3. Not Filing Because Your Business Has More than 500 Employees
Qualifying for the ERTC requires that you have fewer than 500 full-time employees. So, if you have part-time employees, these workers will not count toward a 500-person headcount.
Additional provisions remove employees from the tally if a business paid them not to work or they were paid for hours in which they did not work. If you’re on the cusp of 500, we encourage you to take a second look.
4. Dismissing Your Business from Eligibility Because You Fully Recovered Financially
Even if your business is wholly in the black, you can still qualify because eligibility is determined on a quarterly basis.
If the numbers still look like you’re ineligible for some or all quarters, another option could help you qualify, courtesy of the Consolidated Appropriations Act (CAA). Before this Act was passed, businesses had to compare revenue for the same quarters – as in Q2 of 2021 versus Q2 of 2019. However, the updated provision allows businesses to look back to a prior quarter, which could expand eligibility.
5. Not Keeping Detailed Records
Despite the generosity of the ERTC, it is not free money. Remember, this is a refund for money you’ve already paid, and the government is giving a helping hand to businesses that did their part to keep the economy afloat during a difficult time.
As such, the IRS is looking carefully at all ERTC claims. To receive the tax credit, you must submit detailed records. If you don’t have them, it’s possible to get them, but you should have all your ducks in a row before filing a claim.For help determining eligibility and claiming the maximum refund for which you qualify, we recommend seeking the help of a tax professional. Contact Dayes Law Firm at (866) 567-4510 for a free consultation.