The Employee Retention Credit (ERC) was created as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act to provide financial relief to businesses affected by the COVID-19 pandemic. However, there are several myths and misunderstandings surrounding the ERC that may cause confusion among businesses trying to determine if they have a legitimate opportunity to capture this tax credit. Here are five such myths and misunderstandings:
Myth: The ERC is only available to businesses that were fully shut down by COVID-19. Reality: The ERC is available to businesses that experienced partial shut downs or experienced significant revenue losses due to the pandemic.
Myth: The ERC cannot be claimed by businesses that received a Paycheck Protection Program (PPP) loan. Reality: Initially, that was the case, but due to more recent legislation, businesses that received a forgiven PPP loan, can now qualify for the ERC as long as forgiven PPP wages are not used to calculate the credit.
Myth: The ERC is only available to businesses with a certain number of employees. Reality: The ERC is available to businesses of all sizes. Businesses of certain sizes fall under different rulesets and criteria.
Myth: The ERC is only available for wages paid after December 31, 2020. Reality: The ERC is retroactively available for wages paid after March 12, 2020, and can be claimed for wages paid through September 30, 2021.
Myth: If you let any employees go during the pandemic, you cannot claim the ERC because the credit is named the "Employee Retention Credit". Reality: The ERC is calculated from the wages paid to employees who were on your payroll during qualifying periods of time, regardless of whether you had turnover during the pandemic.
There are many rules related to this complex payroll tax credit, making it difficult to understand and maximize on your own. It is important for businesses to consult with a seasoned tax incentives professional or review the guidance provided by the IRS to determine if they are eligible for the ERC and to ensure they are accurately claiming the credit.
Not sure how your particular situation stacks up against the 170+ pages of law and subsequent IRS guidance? We are happy to take a deep dive into your potential ERC eligibility. Contact us here or call us at (214) 414-9881.
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