GOT QUESTIONS?
We’ve got answers. Take a look at the answers to the our most frequently received questions about the ERTC program.
When the CARES Act (Coronavirus Aid, Relief, and Economic Security Act) was signed into law on March 27, 2020, it included two programs to assist businesses with keeping workers employed: 1) the Payroll Protection Program (PPP) and 2) the lesser-known Employee Retention Tax Credit (ERTC).
Here are the differences:
- PPP was administered by the Small Business Administration. ERTC was administered by the Internal Revenue Service.
- PPP funds are based on 2.5 months of payroll. A minimum of 80% of the funds must be used on payroll to be eligible for forgiveness. PPP funds are not taxable as revenue and you may still take deductions for the payroll covered by PPP.
- ERTC funds are credits (or refunds) for a percentage of payroll in each quarter for which you qualify. There are very specific rules for determining eligibility by quarter, and the dollars that can be claimed for each employee are limited.
The short answer is YES!
Here's why: When the CARES Act was originally signed into law on March 27, 2020, employers could choose PPP funds or ERTC credits, but not both. At the time, PPP was more beneficial than ERTC for most businesses, so most businesses with under 500 employees elected to receive the forgivable PPP Loans.
But the rules changed on March 11, 2021 when The American Rescue Plan Act of 2021 was signed into law and included many modifications and expansions to existing elements of previous stimulus programs. (Most people - including CPA's - aren't aware of this update.)
These changes included:
- Businesses who applied for and received PPP funds can now also claim ERTC credits.
- ERTC credits were extended through 9/30/21 with lower qualification requirements.
- The per-employee cap on qualifying wages increased to $10,000 per quarter for the first 3 quarters of 2021.
- The refundable credit amount increased to 70% in 2021.
Unlike the Payroll Protection Program (PPP), there is no “application process” for the Employee Retention Tax Credits. But there is a process - and you must be compliant.
We are seeing a lot of “pop-up” ERTC companies comparing ERTC to a child tax credit in that they are telling their clients they can claim simply by asserting (or attesting) to the IRS that they can legally claim the credit.
The act of you “attesting” that you are eligible, does not make you eligible! We HIGHLY recommend against this practice. If someone approaches you and asks you to “attest” you are eligible - run, not walk, the other way!
As we mentioned before, ERTC can be a very complex process. We believe it is in your best interest to work with a company who 1) specializes in ERTC, and 2) has your best long-term interest at heart by triple-checking every component of your ERTC filing by our 3 CPA teams to assure accuracy, compliance, and true eligibility.
You may be eligible. While your revenue may be back to normal, there are additional considerations:
While your revenue may have returned to pre-pandemic levels in Q1 2021, remember that we are comparing your Q1 2021 to Q1 2019. If 2019 was a year of growth for your business, then your revenue levels 2 years ago may have been much less than Q1 2020.
And lastly, if your revenues were down in Q4 2020 by just 20% compared to Q4 2019, then you may also be eligible for Q1 2021. There is a safe harbor provision that few advisors are talking about, and it means that many businesses are qualifying for $7,000 per employee in Q1 2021.
And beyond revenue, our CPA team will work with you to help identify the government mandates that had a more than nominal impact on your business.
Qualifying for the ERTC program is about much more than simply revenue losses!
You are most likely referring to a provision of the CARES Act that allowed employers to defer the deposit and payment of the employer's share of Social Security taxes. Those deferrals must then be repaid – with at least 50% of the balance due by 12/31/21 and the remaining balance due by 12/31/22.
ERTC credits are NOT a deferral. They are dollar-for-dollar credits against wages you've paid. Not taxes you've paid, but actual wages. This is an important distinction that people often misunderstand. These credits can offset future tax contributions or you can receive a refund check – it's your choice. As you would imagine, most people choose to receive a check.
But no. You will NOT have to repay these funds (unless, of course, you don't provide adequate documentation to support your eligibility). That's where our team of CPAs can help, by focusing on understanding the specific laws and regulations around this program, and in assuring every point in the process is 100% compliant.
Your banker, CPA, or Financial Advisor are very familiar with working with the SBA. This is part of why they were very helpful in helping with your PPP funds. Plus, and you may not know this, but the SBA paid the bank administrative fees based on the PPP loans they made, and in this way they were incentivized to educate you about the program and get all your paperwork in order.
The PPP program was also a rather simple calculation. 2 ½ times your average monthly payroll including health insurance and state unemployment taxes. Done.
Contrast that with the complexities of the ERTC program administered by the Internal Revenue Service. From the conversations we've had with bankers, they have no interest in involving themselves in your employment tax compliance. For them, not only is it beyond their scope of services, it is a liability.
Plus, if your CPA did know about the program and advised that you were ineligible, it is likely because they were looking at it from a revenue perspective versus limited commerce. These are very important distinctions to keep in mind, because the difference in our ability to handle these complex cases has resulted in many thousands of dollars for clients whose CPA told them they were ineligible.
Computing your ERTC credits requires visibility into your P&L and PPP forgiveness applications. These aren't documents your payroll service provider will have access to.
Not only that, but the complex requirements around eligibility, compliance, and allocating ERTC credits at the employee-level while accounting for annual and quarterly qualifying wage gaps is far outside the scope of a payroll service provider.
Now, we have worked with some payroll service providers and the ones we've worked with so far are happy to provide the payroll registers that we need and they are usually happy to file the Amended Form 941-Xwith the IRS on our client's behalf. But that's it.
Most wise Payroll Services are even asking clients to sign an indemnification waiver before submitting a Form 941-X because they cannot take responsibility for the accuracy of the ERTC credits you are claiming - it is a liability and beyond their scope of services.
You can read the Notice 2021-20 on the official IRS FAQ Site: https://www.irs.gov/pub/irs-drop/n-21-23.pdf
Your tax accountant is a CPA or EA, and he or she likely only prepares your Federal and State Income Tax Returns. Some accountants also provide bookkeeping services, and others payroll.
We have seen that the vast majority of CPAs and Accountants do not handle Employee Retention Tax Credit work because of the complex and tedious process to accurately calculate. In October 2022, we taught a session at the American Institute of Certified Public Accountants (AICPA). Some of the feedback we received from other CPAs was – “their main focus is on staying up-to-date on the ever-evolving income tax code, and they can't now become experts in the ERTC program as well.”
The ERTC credits are claimed against Employment Taxes on Form 941, and this is outside the scope of knowledge of most CPA's or EA's..
The reason most people believe they do not qualify is because the complexity of the ERTC program is a multi-faceted complex animal. If your tax accountant is comfortable determining your eligibility by quarter and year, computing your credits, and preparing the complex documentation to support an IRS audit, then you should certainly let them handle all of this.
If you want a second set of eyes from someone who specializes in complex ERTC filings, we're happy to help.
Your Bookkeeper should definitely have access to all the information necessary for an accurate calculation. They will have your financial reports, payroll registers, and PPP loan forgiveness documents (if applicable).
The BIG QUESTION is . . . do they have the time? And will it be compliant?
- Do they have the time to dig into the text of the American Rescue Plan Act of 2021?
- Do they have the time to dig into the referenced laws like: CARES Act, Families First Act, Payroll & Healthcare Enhancement Act, PPP Payroll Flexibility Act and the Consolidated Appropriations Act?
- Do they have the time to read the IRS Interpretations and FAQ's? And cross-reference those definitions with that of PPP which was separately defined and dissimilarly interpreted in the Small Business Administration's Bulletins and IFRs?
- Do they have the time to ensure accuracy in eligibility determination, maximize your computation and create the supporting documentation you'll need to support an IRS audit of employer taxes?
So far, we haven't found a single bookkeeper who can take all this on, while also handling the day-to-day of bookkeeping. If yours can, then take them up on their offer.
But, if you want to assure maximum eligibility and (more importantly) compliance, we're happy to take a second look.
Absolutely! Our professional team of Account Executives and CPA's are equipped and ready to help as many businesses as possible to apply for their ERTC funds. We welcome you to share this site and information with your colleagues.
Please set up a no-pressure, no-obligation call to speak with one of our knowledgeable Account Executives. They will be very happy to answer any other questions you may have.