By now you’ve probably been inundated with ERC (Employee Retention Credit), also known as ERTC (Employee Retention Tax Credit) ads everywhere…TV, Radio, Billboards, Face Book, Linked In, etc. You are probably getting bombarded with automated voicemails, texts and emails trying to convince you to apply for this Payroll Tax Credit.
Let’s clear up some misconceptions about ERC
Some people believe ERC is fake, or it’s a scam. First of all, ERC is real. You can search the internet for ERC or ERTC and click on the links to irs.gov to see that this is real. This tax credit was also featured on the front page of The New York Times on May 27, 2023.
Next, people say it’s a big pool of COVID relief money that is running out. It’s not a pool of money, you are filing to get your Payroll Taxes back from the IRS. This is money YOU already paid into the Government. The American Rescue Plan Act of 2021 allows you to see if you qualify to get the taxes you paid in back from the IRS. Take advantage of this before the window of opportunity closes. Time is the only thing that is scarce. The deadline to file is April 2024, which will be here in the blink of an eye!
People also say if you received PPP (Paycheck Protection Program) you’re not eligible to file for ERC. That is not true anymore. When the PPP was available with the CARES (Coronavirus Aid, Relief, and Economic Security Act) Act of 2020, CPAs had a choice of filing for PPP or ERC. ERC is very complex and requires ERC Experts, while the PPP was very simple to file for. And if you got PPP you weren’t able to file for ERTC. However, in March of 2021, Congress voted on The American Rescue Plan Act of 2021. This legislation changed the rules, so that even businesses who already received PPP could now file for ERC. Many broad-spectrum CPAs weren’t even aware that the rules had changed, and day-to-day CPAs most likely didn’t know how to process the ERC, since it’s very complex and requires reading through pages and pages of legislative documents. Firms that have been in business since ERC became available took the time to learn the tax code inside and out.
People say their broad-spectrum CPA told them they’re not eligible, or it’s not worth it, or they’ll do it for them instead of an expert ERC firm. We recommend you let a reputable expert ERC firm determine if you’re eligible, if you’re not, they’ll tell you, and it shouldn’t cost you a dime to find out. You should choose an ERC firm who has been doing this for the past two years (when the Legislative changes were made to this tax credit in March of 2021) vs. many of the last-minute ERC shops who are jumping on the bandwagon to make a quick buck. Many of the recently formed last-minute companies are telling clients they are eligible to receive the refund, collect their processing fee up front, and then leave their clients hanging when the IRS audits them. Some companies have had to pay back their refunds in addition to interest and penalties
What to look for in an ERC Firm:
There are several factors you should look into before hiring an ERC firm:
- Make sure their CPA is willing to sign Form 941-X. IRS Form 941-X is the “Adjusted Employer’s QUARTERLY Federal Tax Return or Claim for Refund”. If they are unwilling to sign this form, that is a red flag. By signing this form, the CPA is attesting that they stand behind the refund amount you are getting, and are willing to answer to the IRS in case of an audit.
- Verify the firms’ CPA’s are caclulating the refund numbers based on the IRS’s tax code, and not just entering numbers into a cookie-cutter spreadsheet. Many last mintue firms are just plugging in numbers to a spreadsheet to tell you that you qualify. There is way more to calculating your ERC than that.
- Make sure the firm is not asking for their fee up-front. You should go with a firm that doesn’t get their preparation fee before you get your refund. This isn’t to say that every firm that offers you an option to pay up front is fraudulent, but make sure there is also an option that no one gets paid until you receieve your refund.
- Check that the firm doesn’t only qualify you on loss-of-profit. There are many other factors that go into the qualification process such as supply-chain dispruptions, limits on operational capacity, work from home orders, lack of PPE supplies, etc.
- Be leary of firms that say they can get you funding in a very short timeframe such as several days or weeks. There are legitimate firms that offer “Bridge Loans” which allow you to borrow money in anticipation of receiving your refund from the IRS. But if a firm is offering funding in 48 hours, they are most likely not a legitimate ERC firm.
Why haven’t I heard about ERC until recently.
Many people are aware of the PPP (Paycheck Protection Program) because it was easy to apply for, and was available with the CARES Act of 2020. And PPP was advertised a lot. Originally, you couldn’t file for PPP and ERC, you had to choose one or the other. Since CPAs had a choice of filing for PPP or ERC, most chose PPP because it was easier to file for while ERC is very complex and requires ERTC Experts. In March of 2021, Congress voted on The American Rescue Plan Act of 2021. This legislation changed the rules, so that even businesses who already received PPP could now file for ERC.
When is the filing dealine for ERC?
April 15, 2024 is the deadline to file for 2020.
April 15, 2025 is the deadline to file for 2021.
You should file for both 2020 and 2021 by the 2024 deadline. If you wait until 2025 to file, you will forfeit any refund amount you may have been eligible for in 2020. And just becasue the deadline to file is still a bit off in the distance, the time to file is now. IRS processing times are only getting longer and longer as more and more businesses become aware of the Tax Credit. As of today, processing times can already take 6-12 months, and will continue to take longer as the IRS becomes more inundated with all the returns to process.
Conclusion
So yes ERC is real, and can be a lifeline to a struggling business owner. Many small-business owners have saved their business by getting this well-deserved refund, which, unlike PPP, you don’t have to pay back. Take advantage of the Government’s offer to help you recover funds your business may have lost due to COVID. You helped your employees by keeping them on your payroll, let the Government help you before it’s too late.