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Employment Retention Credit Program – Frequently Asked Questions

While both PPP and ERC are part of the CARES Act, there are some notable differences. First, the PPP was structured as a forgivable loan through your local bank via the SBA.
Unlike PPP, ERC is a Rebate Payroll Tax Credit provided to Business Owners through the IRS with No Repayment at all. It is not a forgivable loan. ERC provides cash for you to do whatever you choose.
The PPP had a specific funding amount and PPP funds ran out. However, ERC funds don’t run out, you just have to claim your credit prior to the end of the 3-year lookback period
Yes. Before the Consolidated Appropriations Act (CAA) was passed in December 2020, businesses could not claim ERC if they had accepted a PPP loan. With the updated CAA, businesses are eligible in 2021 even if they claimed a Paycheck Protection Program loan.
No. It is a cash Rebate from the IRS deposited directly into your Business Bank Account. There is Zero Repayment of this money and you to spend however you’d like, including dividends out to owners.
ERC is not a lending program – tax refunds are issued by the US Treasury. Therefore, all eligible employers will receive the funds they are qualified for, so long as they file their claim within the 3-year look-back period. The ERC program will peak by 2023 and run its course by the third quarter of 2024.
ERC “Version 1” went live in March of 2020 but was mostly ignored due to the focus on PPP.
However, in December 2020, the Government updated the law with the release of ERC “Version 2” through the Consolidated Appropriations Act. Under Version 2, employers were both retroactively and prospectively allowed to take both ERC and PPP (Round 1 and 2)
Version 2 extended the credit into Q1, Q2 and Q3 of 2021. It also increased the field of eligible employers by allowing companies with up to 500 employees to take the credit (up from 100 for 2020.).
In short, it was a huge expansion of eligibility which opened up a significant opportunity for hundreds of thousands of businesses in the US.
A business is eligible if they meet one of two tests. Only one test is required and it’s possible to qualify under one test for one period, and another test for a different period.

The First Test is depending upon whether COVID-19 impacted a company’s ability to generate revenues comparable to pre-COVID levels.

This test looks to compare quarterly periods in 2020 and 2021 to the same quarterly period in 2019. The relevant percentage threshold is 50% in 2020 and 20% in 2021.

For example, if an employer had $49,000 of gross receipts in Q2 2020 compared to $100,000 of gross receipts in Q2 2019, this 51% decline would qualify the employer under the SDGR.

Similarly, an employer with $79,000 of gross receipts in Q1 2021 compared to $100,000 gross receipts in Q1 2019, would also meet the SDGR test for Q1 2021.

Note that in nearly all cases, if a business qualifies under this test for a quarter, they will qualify automatically for the following quarter, provided at least 6 months of eligibility. The look-forward and look-back tests can be quite complicated and we work with our clients closely to help evaluate eligibility.

Even if a company doesn’t meet the SDGR, they can still qualify if they meet the full or partial suspension of operations test, or FPSO.

The full or partial suspension test applies for the following periods of time:

  • 1) When the operations of a business are shut down due to government order
  • 2) When the operations of a business were subject to certain restrictions / modifications, while they are allowed to keep their doors open (such as reductions in operating hours and capacity limit restrictions).

Examples of partial suspensions:

  • 1) Restaurant that was forced to move to take-out or delivery only, or was forced to move to a reduced capacity limit with dine-in service due to social distancing requirements.
  • 2) Gym or fitness center that is required to move to appointment-only, reduced capacity.
  • 3) Doctor’s office that does more than a nominal amount of elective procedures will almost always have a partial suspension for some period of time.

A lesser-known partial suspension can occur when a business is affected due to supplier related issues. For example, a business that cannot obtain materials or supplies from vendors that were shut down by COVID-19, can also translate into the first business being treated as partially suspended.

Finally, there are complex rules that look at businesses with multiple locations, segments, or divisions and can cause the entire business to be treated as partially suspended, even if only due to one of locations, segments, or divisions.

Our Tax Consultants have the experience with all of these cases and has helped hundreds of Clients through the complicated tax code to maximize their ERC – typically 40% more than most CPAs, bookkeepers and payroll providers.

What is an Eligible Employer?

Eligible employers are small businesses in the US that carry on a trade or business during the calendar year for 2020 and / or 2021 and have fewer than 500 W-2 employees.

Note: You can have more than 500 W-2 + 1099 employees and still qualify.

You just cannot have more than 500 W-2 employees.

Eligible Tax-exempt organizations have experienced either of the following:

  • 1) Full or partial suspension to business operations during any calendar quarter in 2020 and / or 2021. These are attributed to governmental orders that limit commerce, travel or other group meetings due to the COVID-19 pandemic.
  • 2) Experienced a significant decline in gross receipts (SDGR) during a calendar quarter for 2020 or 2021. For 2020 quarters, SDGR is defined as a decline of at least 50% compared to the same quarter in 2019. For 2021, this metric has been reduced to a decline of at least 20% for the comparable quarter.

What are Qualified Wages?

Qualified wages are compensation provided to employees during an eligible period after March 12, 2020, inclusive of health plan expenses.

Is my ERC money taxable?

Your ERC is taxable in the year it’s received, subject to your business having taxable income. The slightly wonky answer is: ERC is a reduction of wage expense in the relevant year. If, for example, you deducted $15,000 in wages and you received $5,000 in ERC, you would have $10,000 in deductible wages. Reduction of your Expenses will increase your income and you will be taxed on that Income, assuming your profitable.

What about my CPA or payroll provider like ADP? Can they handle my ERC claim?

The challenge for CPAs is that the ERC credit is based on your payroll returns and not through your business income tax returns, which is what most CPA’s handle.

The vast majority of the time, CPAs are not very well versed in the +150 pages of the ERC tax code, which means you may get less than you should. In addition, payroll providers like ADP are definitely not tax experts. Choosing them to do your ERC is like choosing a dentist to fix your foot.

In 2020, we saw a gap in the market that existed between income tax CPAs and payroll providers, where neither were well equipped to handle ERC work. Because most CPAs handling income tax are not well versed in payroll taxes and are usually already overextended with income tax preparation, they simply haven’t had the time and resources to develop the sub-specialty in Employee Retention Credits.

If you are just hearing of the ERC now from us, this is likely further evidence of that fact.

Payroll providers (ADP, Paychex, QuickBooks, Gusto, etc.) will submit an ERC claim for you, but will not provide any assistance in determining eligibility and qualified wages. In most cases, they are requiring employers to sign waivers of liability so that the payroll provider cannot be held liable for errors, omissions, or overstatement of ERC claims. Choosing this option may create an immense amount of risk of penalties and other punitive actions from the IRS.

What has changed since the CAA extended into Q1, Q2 and Q3 2021 and removed the PPP restriction?

In March of 2021, the IRS finally came out with more than 100 pages of detailed guidance on the application of both ERC Version 1 in 2020 and ERC Version 2. Since it has been released, our team of experts have read this over and over again, along with the bills that contain the original law.

The IRS guidance is extremely detailed, very thorough, and immensely complex. In addition to the IRS guidance that came out in March, yet another stimulus bill, the American Rescue Plan Act (ARPA) was released the same month that extended the ERC further into 2021.

Internally, we refer to this as ERC Version 3. ERC Version 3 largely employs the same rules as ERC Version 2. However, it also includes a variation of the ERC called the Recovery Startup Credit (RSC). The RSC can be claimed by any new business started after February 15, 2020, regardless of whether COVID-19 affected the operation or financial results of the “startup business.

The RSC is capped at $50K per quarter (using the same 70% x $10K to reach it), and is only available for certain quarters of 2021.

Is your head spinning yet? Don’t worry, that’s why we’re here – to get you the maximum amount you are due from the Employee Retention Credit program. Just contact us and get started today!

If I already filed my amended Form(s) 941-X with the IRS to claim my ERC, can I still work with you to get more?

Yes. We do a lot of “second look” work where Clients have us review their original ERC submission and if we find more credit than originally claimed, we can re-amend your Form(s) 941-X to get you any additional amounts.

Even if you’ve gotten your ERC check already and cashed it, there is still an opportunity to re-amend and re-file your claim to get the max credit you deserve.

How long will it take to receive my ERC money?

Currently, the IRS is not providing any estimates related to the timing of Employee Retention Credit receipt. However, they have indicated that there are over 1.8 million paper payroll tax returns in the queue with the IRS. We estimate you will be waiting 8-12 months from the filing date of your claim.

Advance Payment Option.

In order to remove the uncertainty to our qualified clients on the timing of receipt of their Funds, we offer an Option that enables the receipt of funds in as little as two weeks - following the submission of our package to the IRS.