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Understanding the Employee Retention Tax Credit Program

Understanding the Employee Retention Tax Credit ProgramPhoto from Unsplash

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Getting the Employee Retention Tax Credit for Your Business Could be the Smartest Move a Business Owner Could Make this Entire Year!

Understanding the Employee Retention Tax Credit Program

The world has been through a rough couple of years, and things are yet to pick back up. What started with the global health crisis has stretched out to record-high inflation, putting considerable strain on businesses and individuals alike. The duration and severity of the health crisis forced many emergency measures that had disastrous effects on all economic activity, forcing closures, layoffs, and significant overall losses.

As part of the government’s efforts to try and ameliorate the far-reaching effects of the health crisis, the CARES Act (Coronavirus Aid, Relief, and Economic Security Act) was signed into law. Some of the provisions contained in this initiative were the PPP (Payroll Protection Program) and the ERTC (Employee Retention Tax Credit Program). Initially, employers had to choose between one or the other, but the Consolidated Appropriation Act came along and changed things to make enterprises eligible for both.

Because of some of the complexities regarding the ERTC program and the lack of knowledge among employers that might qualify for the program, it will be useful to take a closer look at the program, highlighting what it’s all about, who qualifies for it, how it works, and whether it might be an ideal solution for you. 

How the Employee Retention Tax Credit Program Works

The ERTC is not a loan or grant. Money will come directly from the government into the pockets of eligible business applicants. This refundable tax credit allows employers to receive a maximum amount of $26,000 from the IRS in the form of a check written to the qualifying business. This is arrived at by combining the $21,000 limit for 2020 with the $5,000 limit for 2021.

It’s important to note that the ERTC tax credit is only accessible to businesses, not individuals, regardless of their professions. The plain fact of it is that a company will only be eligible for the ERTC tax credit if it has employees on its permanent payroll (complete with W2s). This criterion excludes contractors and casual workers from the bracket of eligibility.

Don’t confuse the ERTC with the tax deductions you might be more familiar with. Instead of reducing the taxable income of a business, this facility works by subtracting the credit from the amount they owe in taxes, regardless of any other tax liabilities they may be exposed to.

Who is Eligible for the ERTC Program?

The ERTC program does not discriminate against various types of businesses as long as they can demonstrate that the global health crisis marred their operations. Whether you run a private enterprise or a tax-exempt organization, you will only need to prove that one of the following criteria is true for you:

  • Your business saw a gross decline in receipts amounting to 50 percent or more in any quarter of the year 2020 compared to the corresponding quarter from 2019, or it experienced a 20 percent drop in 2021 compared to the same quarter in 2019.
  • Your business was forced to suspend its operations, whether partially or fully, as a result of federal, state, or local health crisis management policies and edicts.

Do not be discouraged if you started your business in 2020 because you will still be eligible. You should also keep in mind that there are no minimum or maximum limits on the size of the business that can apply for the ERTC credit relief program, no matter how many employees will be registered on the application. Even so, it is generally understood that small to medium-sized companies have an easier time benefitting from the program.

Demystifying the ERTC Program

While the criteria and workings of the ERTC program may seem straightforward as we list them here, the reality is that they can be very complex and hard to navigate. This is one of the major reasons the program is heavily underutilized by businesses that qualify for credits. Here’s a quick overview of some of the most confusing elements of the program to help give you an idea of some of the areas ERTC experts can help you maneuver through:

Using Your CPA for ERTC

While it’s possible to have your accountant handle your ERTC credit application, you will be better off having specialist ERTC processors. CPAs typically deal with business income tax returns, which are different from the payroll returns, which form the basis of ERTC applications.

“A strong back office processing your ERTC could possibly recover an additional 10% to 20% more money for your business because that is all they do”.

Eligibility Status with Increased 2020 Profitability

Even if you had the good fortune to make more money in 2020 than in pre-health crisis years, you would still be eligible for the program if you were forced to shut down or suspend your operations due to government regulations.

Eligibility of Business Owners and Self-Employed Professionals

The ERTC is set up to try and help businesses that employees rely on for their income, and to the point is to help them stay in business. Because of this, if you own more than 50 percent of the shares in a business, you and your immediate family members will not be eligible for the program. This applies to self-employed business owners and privately practicing professionals.

Waiting Times for ERTC Payments

The government, as you may well know, tends to move rather slowly, but it always gets there eventually. According to the Internal Revenue Service (IRS), ERTC applicants can expect to see their credit reflected in their account anywhere between 4 months and 6 months. With ERC Applications, however, you can apply to their revolving credit facility so that you can have access to ready cash as your ERTC payment is still in the works.

Business that Received PPP (Paycheck Protection Program) Do Qualify Now

The intricacies of the Employee Retention Tax Credit program should not be the reason you lose out on potential thousands that can help your business recover some of the damages and losses it incurred during the health crisis. Put your faith in experts specializing in ERTC applications and processing to give yourself the best shot. You need experienced help, so don’t settle for anything less.

Business Owner Wages Eligibility for ERTC

Maybe. Wages of owners who have majority ownership, defined as over 50%, do not qualify, nor do the W2 wages of any immediate family members of the owner. In the case an owner has less than 50% ownership, their W2 wages qualify, as do the W2 wages paid to immediate family members.

Increased Revenue During 2020 and 2021

For businesses that do not fit under revenue reduction qualification there is “full or partial shutdown of your business due to the health crisis”. As defined by the IRS “A government authority required partial or full shutdown of your business during 2020 or 2021. This includes your operations being limited by commerce, inability to travel or restrictions of group meetings.” Below are several examples of qualifying events:

Final Thoughts:

The intricacies of the Employee Retention Tax Credit program should not be the reason you lose out on potential thousands that can help your business recover some of the damages and losses it incurred during the global health crisis. Put your faith in experts specializing in ERTC applications and processing to give yourself the best shot. You need experienced help, so don’t settle for anything less.

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