Most business owners know that the Employee Retention Tax Credit (ERTC) gives businesses up to $26,000 per employee, but there’s a lot of confusion about eligibility and how to file. The deadline to claim ERTC funds is fast approaching, but before you file, there are some important considerations you should be aware of.
Here is some helpful background information and reporting requirements that can help increase the chances of your ERTC application being approved.
ERTC is Not a Loan
The ERTC is a component of the CARES Act (Coronavirus Aid, Relief, and Economic Security), constituting a $2.2 trillion relief package to help people and businesses stay afloat during the pandemic.
While different types of relief have been provided since the start of the pandemic, ERTC is an IRS tax refund, not a loan or grant. This means you don’t have to pay it back, and ERTC can give your business a valuable influx of cash.
By May 2022, eligible employers had claimed $32 billion in ERTC funds, and this doesn’t include the backlog of hundreds of thousands of pending applications.
There Are Multiple Ways to Qualify for ERTC
You may have encountered conflicting information during your research of the ERTC, and the IRS has added to the confusion by making several major updates since enacting the program.
There are three ways to qualify for ERTC:
- If your business experienced a significant drop in revenue, you may be eligible. Eligibility is determined by comparing revenue in 2020 and 2021 to the same quarter in 2019.
For 2020 ERTC eligibility, you must have experienced a decrease in gross revenue of at least 50% compared to 2019. For 2021 eligibility, revenue must be 20% lower than 2019 income for each quarter you claim a refund.
- Even if you did not experience the required decline in gross receipts to meet the threshold, you could be eligible for the tax credit if your business operations were partially or fully restricted by government order.
- Businesses that started on or after February 15, 2020, may also be eligible.
To be eligible to receive funds, you only need to meet one of the above requirements, not two or three.
ERTC and PPP
Under one of the previous ERTC iterations, you could not claim the credit if you got a Paycheck Protection Program (PPP) loan. However, that is no longer the case. Still, there are some particular rules about eligibility.
The most significant caveat about ERTC eligibility and PPP loans is that you cannot claim an ERTC credit for PPP funds that were used to pay wages. You may recall, however, that businesses could use up to 40% of PPP funding for non-wage expenses, such as rent, utilities, mortgage interest, etc.
Therefore, if you have not applied for PPP loan forgiveness yet (or you have and didn’t claim that 100% of it was paid for salaries), you can still get the ERTC.
Be Careful Who You Trust
There are a lot of fly-by-night operations sprouting up, claiming that they can get businesses massive ERTC checks. Unfortunately, a fair number of these people (especially those soliciting you aggressively) are scammers with dollar signs in their eyes.
Even well-meaning accountants and financial advisors may inadvertently steer you in the wrong direction. An improperly filed application could lead to an audit, returning funds, and harsh penalties.
Contact Dayes Law Firm for Assistance with the Employee Retention Tax Credit
At Dayes Law Firm, we have helped hundreds of business owners file for the ERTC, with tax credit claims totaling over $250 million. To learn more about whether you are eligible for the ERTC and how much you can claim, call us for a no-cost, no-obligation evaluation.