These are the common ERC FAQs
You will find below the most common ERC FAQs concerning the employee retention credit program.
What is employee retention credit IRS ERC Program?
The Employee Retention Credit IRS ERC Program is a stimulus grant from the CARES Act, given to businesses as a refundable tax credit.
You might be eligible for this money if your business qualified and retained employees during the Covid-19 pandemic.
The ERC does not have to be repaid like a loan, making it especially valuable for small or mid-sized companies struggling after the 2020’s events.
Calculate the wages and healthcare paid to your employees during this period to see if your business qualifies.
ERC Program Requirements
How do I meet the requirements?
There are two methods to meet the requirements:
- A government authority has requested a shutdown of all or part of your business operations sometime during 2020 or 2021. This includes limitations on commerce, travel, or group meetings.
- The gross receipts reduction amounts for 2020 and 2021 are based on the current quarter’s performance compared to the 2019 pre-COVID numbers.
If we remained open during the pandemic, would we still qualify?
Your business must have suffered a decline in gross receipts by 20% or had to change operations due to government orders to qualify.
Some examples of business operation changes that would fall under the Employee Retention Credit are if employees’ job roles shift or if extra protective equipment is purchased.
What types of changes qualify as operational?
If any of the following criteria apply to your business, you may be qualified for the Employee Retention Credit.
Social distancing and other recent changes have forced many businesses to change their operations.
Some common disruptions are:
- Changes in business hours
- Reductions or limitations in services offered.
- Supply chain or vendor shutdowns
- Social distancing requirements for customers and employees
- Changes in job roles/functions
- When working from home or transitioning to remote work isn’t possible, this often results in a lack of opportunity to travel and fewer group meetings.
Can we still qualify if our gross receipts do not decline by 20%?
If any of the following occurs to your business, it will qualify for the ERC:
- A government authority requires a forced shutdown of part or all your operations during 2020-2021 due to issues such as trade limitations, travel bans, or meeting restrictions.
- Gross receipts are calculated differently for 2020 and 2021, but in both cases, receipts from the current quarter are compared against corresponding 2019 figures (i.e., Q1 with Q1).
My revenue has not decreased– do I still meet the qualifications?
You may qualify in one of two ways: Either by demonstrating a change to your business operations OR experiencing a revenue decline.
You don’t need to prove a loss in income; many businesses that saw an increase still qualified.
Are you still eligible if you have taken The Paycheck Protection Program (PPP)?
If your company is eligible for the employee retention credit (ERC), you can still claim the ERC if you receive a Small Business Interruption Loan under the Paycheck Protection Program (PPP).
However, only wages not used for the PPP will be eligible for the ERC.
How do you subtract or account for PPP?
We cannot use PPP-covered wages to instead qualify for ERC. With “no double-dipping,” this interplay between an employer’s forgiven PPP loan and its own eligibility for the Expansion Rebate Credit is not allowed.
What is the program’s duration?
The program started on March 13, 2020, and will end on September 30, 2021, for eligible employers who apply.
According to the Department of Treasury, you can file refunds until April 15, 2024, for 2020’s quarters and April 15, 2025, for 2021’s quarters.
We have had clients who only received restitution while others qualified to not only get their refund but also continue receiving ERC (employee retention credit) payments in every payroll they processed through December 31, 2021, at the cost of about 30% of their total payroll amount paid out.
We have had clients receive anywhere from $100,000 to 6 million dollars in refunds so far.
When Is The Employee Retention Credit (ERC) Deadline?
The application for the credit is still open and available for 2020 and the 3 quarters of 2021 that have passed.
After that, you can apply by filing an amended quarterly payroll tax return (Form 941X) with the IRS. Those eligible for the credit amount and interest on Form 941X will receive a check.
There is, however, a statute of limitations on these types of returns – they can be filed up to three years from their due date.
So, for example, Statements covering activity during Quarter 2 need to be submitted by July 2023 at the latest.
What About Taxes?
If you receive a refund, is it considered taxable income?
The refund will decrease the payroll expenses for the period the credit is applicable. The interest that the IRS pays on credit is regarded as taxable income and will be received in the corresponding period.
Will I be able to deduct the commission I paid to BLC on my taxes?
Yes, for example, if a company’s ERC refund was $200 and Auditing Services Specialist commission was $60, then the deductions for the net expense of $140 would be lost, meaning there would be an increase in taxable income.
Is this subject to taxation?
Yes, the fee can be expensed as a professional expense.
What is the likelihood that the IRS will audit me?
Although it’s always possible to get audited by the IRS, it’s unlikely.
In fact, for employment-related tax returns, the audit rate was less than 3 per 10,000 when data was last available.
However, if you, unfortunately, get audited and need representation in front of the IRS, we will provide all of the required documentation to back up our work.
Thank You For Your Time,
ERC Scope Team