Businesses across the country have yet to evaluate the 2021 Employee Retention Credit (ERC). Or have assumed that they are ineligible. As a result, a substantial sum of money is still being paid to the federal government when it could be spent on businesses in need.
The maximum ERC amount in 2021 was $7,000 per employee every quarter. As a result, if a business can find $10,000 in qualified salaries from each employee. Then in the first and second quarters of 2021, the maximum ERC per employee will be $14,000. This means that a 10-person company could get up to $140,000 in ERC. While a company with 300 employees could get up to $4,200,000.
Large sums of money are offered for this credit. But companies are missing out due to a lack of understanding or COVID burnout.
It’s time to debunk the 2022 ERC myths and clarify the biggest misconceptions about ERC. But before we do that, businesses need to understand what ERC is:
What Is Employee Retention Credit?
Businesses can claim this tax credit on wages paid to qualified employees, including some health insurance premiums.
A temporary coronavirus relief program, the ERC, was first implemented last year to assist businesses in keeping employees on the payroll.
Tax credits for the ERC have fetched tens of thousands of dollars to companies. It has made a huge difference for those businesses struggling to keep their doors open. And their employees on the payroll.
Who Qualifies and Who Does Not?
Sadly, many businesses are unaware that all businesses are eligible for the Employee Retention Credit under the CARES Act. This provision offers money that the federal government has set aside specifically to assist U.S. businesses in surviving and prospering during this historical period of pandemic and economic crisis.
Refundable above the line, federal payroll tax credits are available to businesses and non-profit organizations affected by COVID-19. Employees can receive up to $26,000 in cashback from this credit.
5 Most Common Mistakes And Misconceptions About The Employee Retention Credit (ERC)?
You Must Show a 50% Loss to Qualify
Changes to eligibility criteria made by the new Congress and President Biden in the CARES Act of 2020 are significant and broadening. After the pandemic, salons are only required to show a 20 percent drop in revenue from pre-pandemic levels or that the government restricted their business. A single test is all you need to qualify as an ERC-eligible employer, so even if your revenue rises, you’ll still be eligible.
Almost all salons, barbershops, spas, and beauty colleges should be able to use these new, broader qualifications due to the ongoing lockdowns and capacity limitations placed on the industry during Covid’s peak in 2020 and early 2021.
You Don’t Qualify Because Your Business Was Not Shut Down During the Pandemic
In some cases, a partial suspension of your client’s business by the government could qualify. The ERC may still apply in some cases of a partial shutdown, business disruption, lack of access to equipment, limited capacity, supply chain or vendor shutdowns, reductions in services offered, reductions in hours to accommodate sanitation, and the shutdown of some locations but not others of a business.
One of the most important things to consider is whether or not your business has suffered a significant impact due to the government-ordered partial (or full) suspension. The reduction in gross receipts test is not the only way to qualify for the ERC; a partial or complete suspension is also an option.
You Don’t Qualify Because You Acquired a PPP Loan
The Employee Retention Credit (ERC) is available to businesses that did not receive the Paycheck Protection Program (PPP) as authorized by the CARES Act for the tax year 2020. However, the Consolidated Appropriations Act added PPP recipients eligible for financial aid.
The ERC can now be claimed by small businesses that received the PPP loan for both 2020 and 2021. The ERC calculation basis excludes wages paid with the PPP loan. Wages paid to employees for ERC purposes may not be considered when applying for PPP loan forgiveness, to be more specific.
ERC and the Work Opportunity Tax Credit (WOTC) cannot be claimed by an employer using the same wage base to avoid “double-dipping.” The ERC and family and medical leave credits are also available, but not on the same basis as the ERC.
Working with an ERC expert is essential because this program section’s rules are complicated.
You Don’t Qualify Because You Are a Company of 500 Employees
False. All businesses, even non-profits, can take the credit. The number of employees only determines how many wages qualify. It didn’t matter how many people worked for a company in 2021.
All salaries paid throughout an eligible quarter or period can qualify for ERC* benefits. As long as a business has more than 500 employees, salaries paid to employees when the employee isn’t working are qualified wages for the ERC.
*Aggregation rules are in place*
Because of ERC, You Can Only Get Up to $5,000 per Employer at a Time
Not at all!
If you had a job in 2020, the original ERC law said you could only get $5,000 for each employee. The new law extended the benefit and raised the possible credit to $7,000 per employee per quarter. This means that businesses in this field can get up to $19,000 for each employee now and another $14,000 by the end of the year. If this year goes well, each employee could make $33,000 by the end of the year.
Efforts by the federal government to alleviate the financial impact of the COVID-19 pandemic have included the Employee Retention Credit. Refundable credits of up to $33,000 are available from March 2020 through December 2021 for eligible employers. Remember to consult with a trusted financial advisor or accountant to ensure that you comply with IRS regulations.
As the infectious Delta and Omicron variant’s spread continues, our hard-hit industry must take advantage of the ERC’s additional assistance before COVID restrictions are reinstated.