Many companies received information from highly trusted, financial professionals, that their companies don’t qualify for the ERC. As a result, you are not applying for this large, refundable credit ... yikes!! You CAN and SHOULD apply for the ERC before the window of opportunity to do so closes.
The Top 10 Mistakes and Misunderstandings Surrounding the ERC
Now you can claim both! Congress, in the Consolidated Appropriations Act (CAA) of 2021, removed the limitation on only claiming one or the other. PPP will only account for 2.5 times your monthly payroll expenses and is meant to be spread out over six months. This leaves plenty of uncovered wage expenses for claiming the ERC.
But remember, there is also other ways to qualify for the ERC – if your business has been subject to a partial or full suspension due to a government order. See the next point.
Even a partial suspension order by the government (federal, state or local) of your client’s business could potentially qualify. For instance, the following scenarios all still potentially qualify for the ERC:
The key considerations are – due to the government ordered partial (or full) suspension your business was not able to continue its activities in a comparable manner and did that result in a more than nominal impact on their business operations? Remember, the partial or full suspension is an alternative way to qualify for the ERC, separate from the reduction in gross receipts test.
Even if your business is deemed essential, an impact or change in their business may still qualify them. For example, even if they were open but their vendors were closed down or they couldn’t go to their client’s job site, they may still qualify. Or alternatively, if part of their business was considered nonessential and was impacted by a government-ordered suspension, they may also qualify. The scenarios discussed above in Mistake 3 could apply here as well.
This is something that is great news! If your company has grown during quarantine, but experienced a full or partial suspension, there are expenses and disruptions that may qualify.
You have the option to look at one quarter prior to determine qualification. This means your eligibility will be based on lost revenue in 2020. Also, if you were subject to a full or partial suspension, you may qualify regardless.
This is a refundable credit. In practice, this means that any credit overage above tax liability is sent to the taxpayer/business owner as a refund.
The employee count restriction is based on full time equivalent (FTE) employees, which is a more involved calculation than just counting everyone in the office. For Example: in 2021 a company had 640 employees, however the FTE calculation put them at under 500. Furthermore, if you paid any employees to NOT work, or to work less than the hours for which they were paid, then the employee count restriction would not apply for those employees.
The ERC may also provide significant benefit to charities – churches, nonprofit hospitals, museums, etc. Charities can be particularly good candidates for the ERC.
There are still many tax advisors who think that they can just create their own simple form. They check a few boxes, give a few-sentence explanation, and expect the IRS to hand over thousands and thousands of dollars on a silver platter and then play audit lottery? Guess again.
You need specialized and customized help to get the maximum amount ERC tax credit. You will need documentation for the ERC in order to pass muster with the IRS if you are audited.
Like any tax filing, the best practice is for businesses to provide contemporaneous documentation now, when first determining whether they qualify. To avoid headaches and heartaches down the road, you need to have professional counsel to properly and fully document how their business qualifies for the ERC, to be held and used as supporting evidence if an audit occurs.
Many companies are still struggling to stay open. There is so much business uncertainty due to COVID-19 and the variants. What effect will this have on your business? Do you have enough cash to make it another month, quarter or year?
CES’ qualified CPA partner will educate and qualify your company for the maximum ERC tax credit you are allowed. The ERC is a fantastic tax incentive that will help your company survive AND thrive through the challenges in the coming years!
If you can demonstrate that some or any of these factors impacted your company let us see if our ERC specialist partners can work on your behalf to see if you qualify!