Is your business eligible to claim the Employee Retention Credit (ERC)? The Employee Retention Credit was first passed with the Cares Act and modified by other acts, including the Consolidation Appropriations Act, the American Rescue Plan Act, the Infrastructure Investment and Jobs Act, and the ERTC Reinvestment Act.
Because of all the amendments and changes to the ERC, several misconceptions may be preventing you from claiming these credits. Let’s take a look at some common misconceptions so that you can determine if you are eligible.
What is the Employee Retention Credit Program?
The ERC initially provided 50% credit on up to $10,000 of eligible wages per employee retained on the payroll between the dates of March 13, 2020, and December 31, 2020. Subsequent acts have modified the ERC so that employers may be able to claim the tax credit for all of 2020 and until September 30, 2021. The end of the ERC was retroactive and implemented by the Infrastructure Investment and Jobs Act. Before that act, the end date for the ERC was December 31, 2021.
Common ERC Misconceptions by Businesses
If you haven’t claimed any of the ERCs, you might be doing so because you believe one of these common misconceptions. Here at Exact Payroll, we can explain these misconceptions and help you determine if you qualify for the ERC.
1. Your Business Didn’t Experience a Decline in Revenue and May Have Increased During the Pandemic
When the Cares Act passed, it was said that a business must experience a 50 percent or greater decline in revenue. This assumption has to do with the gross receipts test. The Consolidation Appropriations Act (CAA) changed that to 20 percent, and there is a second test that may prove eligibility called the government orders test, which involves whether your business experienced a full or partial shutdown.
2. Your Small Business Must Have Fully Shut Down During the Pandemic
Your small business did not have to fully shut down during the pandemic. A partial shutdown may be sufficient to determine whether you are eligible for the ERC. This means that if you reduced in-person services or closed the dining area of your restaurant in favor of offering pickup and delivery only, you may be able to claim the ERC.
3. If You Received a PPP Loan, You Cannot Claim the ERC
The Cares Act stated that any business that received a PPP could not claim the ERC. The CAA has since eliminated this restriction, so if you received PPP loans and even had those loans forgiven, you may still be able to claim the ERC. This is a very complex calculation and we recommend extreme caution if you are not using someone familiar with employment taxes.
4. If You Are a Tax-Exempt Business, You Cannot Claim the ERC
For most federal tax credits, non-profits and tax-exempt businesses are not eligible. The Cares Act specifically states that non-profits may be considered eligible employers in regard to the ERC.
5. You Cannot Claim the ERC if You Are an Essential Business
The pandemic separated businesses into essential and non-essential. Essential businesses included energy providers, child care providers, water and wastewater treatment facilities, medical providers, and critical retail and trades, such as plumbers, electricians, grocery stores, pet stores, and hardware stores.
If your business was one of the essential businesses, you may believe that you cannot claim the ERC. The truth of the matter is that there was no distinction between the two in the ERC, which means that even if you were classified as an essential business and allowed to remain open, you may still be able to claim this federal tax credit.
6. Your Business Is Too Big to Claim the ERC
You may have heard that if you have more than 100 employees, you’re not eligible for the ERC. This was later changed to 500 or fewer employees. However, the employee count in your business is used to determine the types of wages that can be used in the ERC calculation, not to determine your business's overall eligibility for the federal tax credit.
Get an ERC Consultation
If you’re still not sure whether you qualify for the ERC, we can help you at Exact Payroll with our ERC consultation service. We may also be able to help you find additional tax credits that could provide you with up to $26,000 in credits per employee.
To schedule your ERC consultation with our payroll tax specialists, visit this page, or give us a call at 866-987-9898.