Navigating the Employee Retention Credit: Addressing Common Queries

In the intricate landscape of tax credits, the Employee Retention Credit (ERC) has emerged as a critical consideration for businesses navigating the challenges brought on by the COVID-19 pandemic. Here, we address some of the most common questions surrounding the ERC to provide clarity and guidance for businesses seeking to leverage this valuable credit.

1. What is the Employee Retention Credit (ERC)?

The ERC is a tax credit designed to support businesses that have experienced reductions in gross receipts due to the COVID-19 pandemic. This credit equals 50% of qualified wages paid to employees, with a cap of $10,000 per employee per year.

2. Is the ERC a loan?

No, the ERC is not a loan. It is a refundable tax credit. When businesses file their ERC claims, they request a refund check rather than acquiring a loan.

3. Who is eligible for the ERC?

To qualify for the ERC, a business must have experienced a decline in gross receipts of at least 20% in a quarter compared to the same quarter in the prior year. This credit is available to businesses of all sizes, including sole proprietorships, partnerships, corporations, and nonprofits.

4. What are qualified wages for the ERC?

Qualified wages are those paid to employees not eligible for other tax credits, such as the Payroll Tax Credit for Sick and Family Leave. In essence, they encompass wages paid for time worked, including paid time off like vacation or sick leave.

5. How do businesses claim the ERC?

Businesses can claim the ERC by filing Form 941, Employer's Quarterly Federal Tax Return, and including the credit amount on the form. The credit is applicable to wages paid from March 13, 2020, to December 31, 2020.

6. Can businesses claim both the ERC and the Payroll Tax Credit for Sick and Family Leave for the same wages?

No, businesses cannot claim both the ERC and the Payroll Tax Credit for Sick and Family Leave for the same wages. However, they may be eligible for both credits for different wages paid to employees.

7. How much can businesses receive through the ERC?

Businesses can receive as much as $26,000 per W2 employee through the ERC.

8. How soon can businesses receive the ERC funds?

After submitting the ERC refund request to the IRS, businesses can expect to receive their refund checks within 3 to 6 months.

9. Is the money coming from ERC or IRS?

The ERC refund is mailed by the IRS, as outlined in the Cares Act Law where ERC is included.

10. Can businesses provide proof of legitimacy for ERC claims?

Businesses can showcase their legitimacy by referring to testimonials from past clients and verifying our reputation on TrustPilot, a leading business verification and review directory.

11. Can a CPA process the ERC, or is ERC Nationwide's assistance necessary?

While a CPA can process the ERC, ERC Nationwide specializes in maximizing the credit due to its extensive understanding of the program, handling more than 200 pages and numerous revisions of the Cares Act law.

12. Can businesses get ERC funds if they already took the PPP?

Yes, businesses can take advantage of both the PPP and ERC credits, provided the funds are not used for the same expenses.

13. Can businesses qualify for the ERC if their revenue increased in 2020?

Yes, businesses can qualify based on either a revenue reduction or a partial or full shutdown due to COVID-19.

14. Can CPA or payroll companies refer clients to ERC Nationwide?

Yes, ERC Nationwide offers a referral/affiliate program for CPAs and payroll companies.

15. Will ERC funds run out?

No, ERC funds are not limited as it is not a lending program but tax refunds issued by the US Treasury.

16. Is the ERC Credit taxable?

The ERC credit is not considered income for federal income tax purposes, but it reduces deductible wage expenses.

17. Can self-employed individuals qualify for the ERC?

No, the ERC is not applicable to self-employed individuals who are majority owners (over 50%) of their companies.

18. Do ERC funds need to be reported on tax returns?

Yes, ERC funds need to be reported on income tax returns, and businesses should inform their CPAs or tax preparers about the received funds.

19. Does the ERC reduce deductible expenses?

Yes, the ERC reduces deductible expenses as per Section 280C(a) of the Internal Revenue Code.

20. Will businesses get audited for claiming the ERC?

While there is always a chance of audit, the likelihood is low due to the IRS's high volume and limited staff.

21. Can startups file for normal quarters under ERC?

Yes, startups can file for normal quarters if they meet specific criteria, such as commencing operations after February 15, 2020.

In conclusion, businesses navigating the ERC landscape can find valuable support and insights by understanding these common questions and their corresponding answers.