If you find the ERC tax credit confusing, you’re not alone. The legislation behind the program is lengthy and complicated, and it has changed several times since it began. This added to the confusion and left many people thinking they don’t qualify based on early guidelines for eligibility. In reality, many companies are eligible but have not yet taken advantage of the program.
Today we’re going to clear up the confusion around some of the most common myths we hear about the ERC program.
ERC myth 1: You only qualify for ERC if your business was shut down.
Many business owners think they can’t get the ERC tax credit because they didn’t completely suspend operations during the pandemic. This isn’t true, you can still qualify even if you partially suspended operations.
While there are other eligibility guidelines in place, companies in the following categories during 2020 and/or 2021 are likely to be eligible for ERC money:
- Significant decline: If you experienced a significant decline in gross receipts during the calendar quarter, you could qualify. The IRS defines “significant decline” as a 20% reduction of revenue as compared to the same quarter in 2019. Essentially, you’re comparing your gross receipts to pre-COVID numbers.
- Full or partial suspension: If you experienced a full or partial suspension of operations due to government orders related to COVID, you could qualify. In this case, the ERC tax credit applies to the time period the suspension was in effect.
ERC myth 2: I can’t get ERC because my business didn’t have a significant decline in gross receipts.
It’s easy to see why people believe this, but it is not true. For the purposes of the ERC credit, you must demonstrate a significant decline in gross receipts OR show that you experienced a full or partial suspension of operations due to pandemic-related government orders. You only have to fit into one of these categories, not both. So even if you didn’t see a decline, you can qualify if the other condition applies to you.
ERC myth 3: I have an essential business so I can’t receive the ERC tax credit.
It is true that essential businesses do not qualify for the ERC, but there is a major exception to this rule that opens up the tax credit to many essential businesses. If suppliers of an essential business were affected in a way that impacted the delivery of goods, the essential business can be eligible. So, if your supply chain was affected and you couldn’t operate as you normally do, you may qualify.
Here is what the IRS has to say about it:
“An employer with an essential business may be considered to have a full or partial suspension of operations if the business’s suppliers are unable to make deliveries of critical goods or materials due to a governmental order that causes the supplier to suspend its operations. If the facts and circumstances indicate that the essential business’s operations are fully or partially suspended as a result of the inability to obtain critical goods or materials from its suppliers that were required to suspend operations, then the essential business would be considered an Eligible Employer and may be eligible to receive the Employee Retention Credit.” IRS Source
ERC myth 4: I received a PPP loan and forgiveness so I’m not eligible for the ERC program.
Companies could not qualify for both the Paycheck Protection Program (PPP) and the ERC tax credit when the legislation was first signed into law. Regulations changed, however, and opened the ERC program up to those that received a PPP loan and forgiveness. This change was retroactive and allowed eligible companies to claim ERC on certain qualified wages. Wages counting toward eligibility for ERC or PPP forgiveness can be applied to either program, but the same wages cannot be applied to both.
ERC myth 5: The ERC program ended so it’s too late.
The eligibility period for ERC calculations has ended, but it is not too late to get ERC money. This is because you have a three-year window to file corrections to the 941s you’ve already submitted. If you are eligible and have already filed your 941s, you can file Form 941-X to claim the ERC tax credit.
There are a couple of periods of limitations to keep in mind for submitting corrected 941-Xs:
- Three years from the date of the original Form 941 filing
- Two years from the date taxes reported on Form 941 were paid.
ERC myth 6: I checked already and I’m not eligible, so there is no reason to try again.
Laws were passed quickly during the pandemic to speed up relief efforts. The pandemic also created a changing landscape that was hard to predict. This left business owners without much guidance on how the laws applied. Since that time, additional laws were passed that opened up the ERC program to companies that were not previously eligible. This means that even if you were told you did not qualify before, you may very well be eligible now. Since the ETC tax credit can be worth up to $26K per employee, it is worth taking a second look.
These are just a few of the misconceptions people have about the ERC program. Your best bet is to have a financial professional help you determine eligibility, otherwise you could miss out on tens of thousands of dollars. Finding the right company is important because many CPAs and accountants aren’t prepared to handle the complicated calculations needed to maximize your ERC credit.
The material presented here is educational in nature and is not intended to be, nor should be relied upon, as legal or financial advice. Please consult with an attorney or financial professional for advice.