Have You Considered The Employee Retention Credit?

The Employee Retention Credit (ERC) which was part of the CARES Act has become all the rave over the past 6 months. For the 18 months prior to that most employers were focused on the Paycheck Protection Program (PPP), and many thought for some time that if they received PPP funds they could not claim the Employee Retention Credit. Although receipt of PPP monies may lower the available wages for which an employer can claim a credit, and despite the difficult to discern qualifications, various changes and clarifications that have been issued many taxpayer’s are able to claim both. This is why the IRS has recently announced that many taxpayers should expect delays in potential refunds of the credit.

Some of the IRS’s Standard Guidance on Eligibility is as follows: Employers, including tax-exempt organizations, are eligible for the credit if they operate a trade or business during calendar year 2020 and 2021 and experience either:

1. the full or partial suspension of the operation of their trade or business during any calendar quarter because of governmental orders limiting commerce, travel or group meetings due to COVID-19 between 3/13/20 and 9/30/21 or
2. a significant decline in gross receipts during those same quarters listed above compared to that same calendar quarter in 2019

The credit applies to qualified wages (including certain health plan expenses) paid during the period above to be credited against federal payroll taxes.

However this quick explanation certainly over simplifies the ERC calculation for most employers, The IRS has issued hundreds of pages of Revenue Procedures providing detailed guidance along with almost 100 FAQ’s directly on their website to assist taxpayer’s and practitioner’s in calculating the potential tax credit.

Even with all the eligibility confusion surrounding these credits they can still be of great value for the cash flow of many small business owners who have survived through the Pandemic. Unfortunately because of that there are many 3rd Party providers providing poor guidance to employers and the IRS has warned business owners as such. If you have not done so already take the time to contact your tax service provider as soon as possible to see if you may be eligible as there is a time limit on filing for the ERC and the preparation process can take some time. Or you can of course reach out to a certified practitioner here at Levine Jacobs.

Charles F. Ott, MBA/CPA
Managing Member
cott@ljcpa.com