Debunking ERC Myths
As businesses continue to navigate the challenges of the COVID-19 pandemic, the Employee Retention Tax Credit (ERTC) has emerged as a valuable financial relief option. However, like any tax credit, there are misconceptions and myths surrounding the ERTC that may prevent eligible businesses from taking advantage of this opportunity. In this blog, we’ll debunk the top 5 myths about the ERTC to help you better understand this credit and how it can benefit your business.
Myth 1: The ERTC is only available to large businesses.
One common myth about the ERTC is that it’s only available to large businesses. In fact, the ERTC is designed to help businesses of all sizes, including small and medium-sized enterprises. Eligible employers include those with 500 or fewer employees, as well as certain tax-exempt organizations. Even if your business has only a few employees, you may still qualify for the ERTC if you meet the other eligibility criteria, such as experiencing a significant decline in gross receipts or being subject to a full or partial suspension of operations due to government orders.
Myth 2: The ERTC is only for businesses that were closed during the pandemic.
Another misconception is that the ERTC is only for businesses that were completely closed during the pandemic. While the ERTC does provide relief to businesses that were fully or partially suspended due to government orders, it’s not limited to just closed businesses. If your business experienced a significant decline in gross receipts compared to a prior year quarter (50% for 2020 and 20% for 2021), you may still qualify for the ERTC, even if you remained open during the pandemic. This makes the ERTC applicable to a wide range of businesses that have been impacted by the economic downturn.
Myth 3: If my business received a Paycheck Protection Program (PPP) loan, I’m not eligible for the ERTC.
There is a common misconception that businesses that received a PPP loan are not eligible for the ERTC. While it’s true that businesses cannot double-dip and claim both the ERTC and PPP forgiveness for the same wages, receiving a PPP loan does not automatically disqualify your business from claiming the ERTC. Recent law changes have allowed businesses to potentially claim both the ERTC and PPP, with certain restrictions. For example, if you used PPP funds for non-wage expenses, you may still be eligible to claim the ERTC for qualified wages paid to your employees.
Myth 4: The ERTC is not worth the effort to claim.
Some businesses may be hesitant to claim the ERTC, thinking that the effort and paperwork involved may not be worth the benefit. However, the ERTC can provide significant financial relief to eligible businesses, with credits of up to 70% of qualified wages, up to $5,000 per employee per quarter for 2021 and $7,000 per employee per quarter for 2020. This can add up to substantial savings that can help offset payroll costs and other operational expenses. Additionally, recent law changes have introduced provisions such as advance payments and simplified filing options, making it easier for businesses to claim the ERTC.
Myth 5: I missed the deadline to claim the ERTC, so it’s too late for my business.
It’s true that the ERTC has specific deadlines for claiming the credit, but if you missed the initial deadlines, it’s not necessarily too late to claim the credit. The ERTC can be claimed retroactively, which means that you may still be able to claim the credit for qualified wages paid in previous quarters, as long as you meet the eligibility criteria. It’s important to review the specific deadlines and requirements with a qualified tax attorney... NOT A CPA. Nothing against your CPA, but most are not versed in ERTC like we are. It’s important that you ensure you actually qualify and that you’re not leaving money on the table that’s rightfully yours.
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With the help of the tax attorneys at Biz Head Law, businesses can quickly determine if they are qualified for this powerful incentive. In just 10 minutes or less, they are also provided with an estimate, which can be up to $7,000 per quarter for each of the first three quarters of 2021 and up to $5,000 for 2020 for a total of $26,000 per full-time W2 employee under the CARES Act.
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