Table of Contents:
Table of Contents:
The Employee Retention Credit (ERC) — also known as the Employee Retention Tax Credit (ERTC) — is an incentive for small to medium-sized businesses that kept employees on the payroll during the pandemic.
Born out of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, this payroll tax refund can potentially get hundreds of thousands of dollars flowing back into your business. Claiming the ERC refund can be complicated due to the amendments, restrictions, and requirements from Congress. Below, we’ll tackle the questions you should ask before using a certified public accountant (CPA) or tax attorney to file for your business' Employee Retention Credit refund.
How Much Money Can I Get From the ERC 2020 and ERC 2021?
The Employee Retention Credit refund amount is per employee for qualifying businesses and includes a maximum of $5,000 for the year of 2020, and up to $7,000 for each of the first three quarters of 2021. That’s a substantial refund per employee kept on your payroll.
However, the ERC claim deadline is fast approaching. It’s crucial that when you file your ERC claim, everything is in order so your claim won’t be returned with correction requests. Should you need to make document corrections for the IRS, you’ll have additional delays that could result in a missed deadline for a specific qualifying quarter.
Is My Business Eligible for the ERC?
Thousands of small to mid-sized businesses qualify.
ERC 2020 Qualifications:
- 100 or fewer employees on your payroll.
- Employees were kept on your payroll.
- You had to partially or fully shut down because of a government order OR
- Your business’ revenue declined by 50% or more during any quarter when compared to the same quarter in 2019.
ERC 2021 Qualifications:
- 500 or fewer employees on your payroll.
- Employees were kept on your payroll.
- You had to partially or fully shut down because of a government order OR
- Your revenue declined by at least 20% for any of the first three quarters of 2021 when compared to the same quarter in 2019.
Due to all of the changes and updates to the ERC program, your CPA or tax attorney may not be aware of the difference in qualification guidelines for 2020 and 2021. We find this to be a common issue, because the ERC program has changed three times since its inception. They may even advise that you don’t qualify when you actually do — potentially causing you to miss out on reclaiming the refund.
Can I Still Apply If I Took Advantage of the PPP?
The Paycheck Protection Program (PPP) was part of the CARES Act and is a separate program from the ERC. The PPP offered loans to qualifying small businesses to help cover payroll expenses. If approved, these loans were eligible for loan forgiveness through the Small Business Administration (SBA).
Not only can you still apply for the ERC if you participated in the PPP, you likely qualify for the ERC. Plus, any wage expenses you didn't cover with your PPP loan can potentially be claimed under the ERC (but you can’t double dip!)
What Documents Will I Need for the ERC Application Process?
The IRS offers guidance on this in the form of a 102-page document. In short, you need:
- Quarterly Profit and Loss Statement (2019, 2020, 2021)
- Monthly Payroll Ledger per employee to include: gross pay, hours worked, deductions / taxes & net pay (2020, 2021)
- Group Healthcare Statement per month (If applicable, 2020, 2021)
- PPP Form 3508 for both 1st and 2nd round (If applicable)
As noted, some of this paperwork may not be applicable to your business. Checking with a tax professional can assist your business with submitting the necessary documents.
When Will I See My ERC Refund if My Business Qualifies?
The ERC refund process will vary depending on a number of factors:
- How quickly you can fill out and gather the necessary documentation? Having your ducks in a row is needed in order for the IRS to process your refund. If any documents are incomplete, missing, or improperly filled out, you may experience processing delays on top of correcting any mistakes in the paperwork.
- Who do you use to file your ERC claim? While using an ERC company could take four to six weeks to process the claim, that time is well spent determining your eligibility, checking for missing information, verifying the accuracy, calculating the credit amounts, and submitting the claim on your behalf.
- The IRS. The IRS is currently taking six to nine months to process ERC claims. This is particularly due to the sheer volume of claims. The time frame could potentially increase the longer you wait.
Can I Complete the ERC Application Process on My Own?
You can, but you’ll need to amend tax documents you’ve already filed with the IRS. However, working with a network of tax professionals who specialize in the Employee Retention Credit process may help your business take full advantage of the program.
How Is an ERC Company Different From a CPA?
An ERC company like Innovation Refunds is a network of tax attorneys, CPAs, and tax professionals with years of tax code and accounting experience. Plus, an ERC company will know the ins and outs of the ERC process as well as be aware of all updates and changes.
For example, the ERC refund for the last quarter of 2021 was opened and then closed — businesses are no longer eligible to receive a refund for that quarter. Additionally, the forms you would have filled out in 2020 are no longer used in the current ERC credit application claims process. An ERC company can help you navigate the technicalities and policy changes to help your business get its payroll tax refund processed smoothly.
If you’re like thousands of other small business owners, you’re still working every day to counter the negative impact of COVID-19 on your operations. Adding the responsibility of completing the ERC application process on top of everything else is a complicated task. However, the financial benefits of the ERC could be life-changing for your business, its employees, and the community that you serve.
Innovation Refunds (IR) understands and respects the time of business owners across the United States. We have worked closely with thousands of businesses to help them not just survive the pandemic, but receive the necessary capital to grow their business.
