Frequently Asked Questions
What is the Employee Retention Tax Credit (ERC/ERTC) and how is it different from Payroll Protection Program (PPP)?
ERTC tax credits (or refunds) are credits for a percentage of payroll in each quarter that you qualify and is administered by the IRS. There are specific rules for determining eligibility by quarter and for limiting the dollars that can be claimed for each employee. The PPP was administered by the Small Business Administration. Funds were distributed based on 2.5 months of payroll and a minimum of 80% of the funds had to 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.
I got PPP funds already. Can I also get ERC/ERTC?
Short answer, YES! When the CARES Act was first passed, employers could choose to apply for one or the other, not both. PPP was easier to qualify for. On March 11 th , 2021, the American Rescue Plan Act of 2021 was passed and included modifications and expansions to existing elements of previous stimulus programs. Businesses could now also claim ERTC credits if they had received PPP funds. ERTC credits could be retroactively claimed for businesses that qualified in 2020. ERTC credits were extended through 9/30/21 with lower qualification requirements.
How do I apply for ERTC Credits?
There is actually no “application process” for the ERC/ERTC. You simply claim the ERTC tax credit like you would any other tax credit on your Form 941 Employer Quarterly Tax Filing. For prior quarters, you must file an amended form (the Form 941-x) to reduce your current quarter’s tax contribution and request a refund.
My revenue in 2021is back to pre-pandemic levels so I must be ineligible?
Even though you may feel like your business is back to normal, there are some things you may want to consider before passing on this program. You may retroactively qualify on decreased revenue or any type of governmental mandate for partial or full shut-down (this can include reduced operating hours, reduced office capacity, special cleaning and PPE mandates, and supply chain disruptions).
Why isn’t my bank talking about this?
The SBA paid banks administrative fees based on the PPP loans they made. So they were incentivized to educate you about the program and get your paperwork in order. The PPP program was also a simple calculation, 2.5x your average monthly payroll including health insurance and state unemployment taxes. The ERTC is much more complicated and bankers do not want to be involved in your employment tax compliance as it is a liability and beyond their scope of services.
What about my payroll service provider. Shouldn’t they be doing this?
Payroll service providers do an excellent job with the fundamentals of paying your employees, your employment taxes and filing your quarterly reports. But ERTC credits require them to have knowledge of your P&L and PPP forgiveness applications. Also there are complex requirements around eligibility while accounting for annual and quarterly qualifying wage gaps. Payroll services that we’ve worked with are happy to provide the payroll registers that we need to perform the allocations. They do not want the responsibility for the accuracy of the ERTC credits you are claiming, and are asking clients to sign an indemnification waiver. They see it as a liability and beyond their scope of services.
Will my Tax CPA handle this for me?
The complexity of the ERTC program is difficult and tax accountants we’ve talked to have said they focus on staying up-to-date on the ever evolving tax code. Most do not want to become experts in the ERTC program as well. If you want a second opinion, we’re happy to take a look.
My bookkeeper has all my info, can’t they handle the claim?
They certainly have the information but do they have the time to dig into the American Rescue Plan Act of 2021, the CARES Act, Families First Act, Payroll and Healthcare Enhancement Act, PPP Payroll Flexibility Act, and the Consolidated Appropriations Act? Do they have time to read the IRS interpretations and cross-reference those definitions with the PPP? So far, we have not found a bookkeeper who wants to take all of this on while handling the day-to-day of bookkeeping. If yours can, that would be great. However, we are happy to provide a second opinion.
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