What is ERC?
ERC is a stimulus program designed to help those businesses that were able to retain their employees during the Covid-19 pandemic. Established by the CARES Act, it is a refundable tax credit – a grant, not a loan – that you can claim for your business. The ERC is available to both small and mid-sized businesses. It is based on qualified wages and healthcare paid to employees.
How do I qualify for the ERC?
There are two ways to qualify:
1. FULL OR PARTIAL SUSPENSION OF BUSINESS OPERATIONS A government authority required partial or full shutdown of your business during 2020 or 2021. This includes your operations being limited by commerce, inability to travel, or restrictions of group meetings.
2. GROSS RECEIPTS REDUCTION Gross receipt reduction criteria are different for 2020 and 2021 but are measured against the current quarter as compared to 2019 pre-COVID amounts.
Will I get audited?
As with any fillings that are done with the IRS there is always a chance that you can get audited, however, with the volume that the IRS is processing and their short staff levels it is highly unlikely, the audit rate for employment-related tax returns for the last year that the data was available for was under 3 per 10,000 returns. In the unlikely event that you do get audited, while we can’t represent you we will assist by providing all of the supporting documentation to back up the work that we did.
When does ERC end?
An eligible employer claiming a refundable credit for any quarter in 2020 must file its 941x forms by April 15, 2024. An eligible employer claiming a refundable credit for any quarter in 2021 must file its 941x forms by April 15, 2025.
Do we still qualify if we already took the PPP?
Yes. Under the Consolidated Appropriations Act, businesses can now qualify for the ERC even if they already received a PPP loan. Note, though, that the ERC will only apply to wages not used for the PPP.
How is PPP subtracted or accounted for?
We can’t use wages covered by PPP loans and apply them to ERC. There is a “no double-dipping” rule governing the interplay of an employer’s forgiven PPP loan and its eligibility for ERC.
Is the commission paid to BLC a tax-deductible expense?
Yes, for example, if a company’s ERC refund was $100 and BLC commission was $30 then the company would lose taxable expense deductions for the net $70 and the net effect would be an increase to its taxable income.
Is the ERC refund considered taxable income?
The refund is a deduction in the payroll expense for the period that the credit is for. The interest that the IRS pays on the credit is considered taxable income in the period that the payment is received.
Do I still qualify if there was no revenue decline?
There are two ways to qualify: EITHER a change in your operations OR a revenue decline. You do not need a revenue decline to qualify, in fact many businesses had a revenue increase and still qualified.