Employee Retention Credit FAQs Answered

As we enter the excitement of tax season, we have had an increase in questions from Accountfully clients surrounding the Employee Retention Credit and how it may affect their business.  If our clients are in a state of uncertainty, we can imagine many other business owners are too.  The good news is our expert tax team is here to help ease the confusion.  We’ve gathered a round of answers and their associated FAQs.  Here are some tips and insight into all things Employee Retention Credit (ERC).

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What Time Frame Is This Credit Applicable To?  When Is It Available?

Credit is available for calendar year 2020 and the first three quarters of 2021. A narrowly defined set of other businesses may also be eligible for Q4 2021.

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How Do I Qualify For The Credit?

There are two ways to qualify for the credit:

1. A government ordered shutdown.  This is defined as a material disruption in the client's business due to a government mandated shutdown.  Gray area alert: a government mandate ordering people to stay at home that causes a decrease in demand for a company's product or services does NOT qualify here. There are a lot of nuances, but think of it in terms of a restaurant or entertainment-focused business, where capacity limits were imposed.  These, or other severe disruptions are more likely to qualify under this rule. 

2. Significant decline in gross revenue.  This is measured under the client's method of accounting for tax purposes, and are slightly different by year and time frame:

• 2020 version: Any quarter where gross revenue declined by 50% or more compared to the same quarter in 2019.
• 2021 version (expired 9/30/21 in most cases): Any quarter where gross revenue declined by 20% or more compared to the same quarter in 2019.

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How Much Do I Qualify For?  

The amount of the potential credit is calculated as follows:

• 50% of wages per employee, up to $10,000 per employee (i.e. $5,000 max credit per employee). This is the maximum for the entire year.
• 70% of wages per employee, up to $10,000 per employee. This is the maximum for each quarter of eligibility (i.e. $7,000 max credit per employee, per quarter).
• The same wages used to qualify for forgiveness of a PPP loan cannot also be used to claim the ERC.

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How Do I Claim It?  Which Form Do I Use?  I Need Help–Can You Help Me?

The Employee Retention Credit is a payroll tax credit that is claimed via the quarterly 941 form, including filing amended 941s to claim the credit. The business’ payroll provider prepares these filings, but if you are unsure of what makes sense in your situation, Accountfully can assist with calculating the actual credit portion.

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This Company Reached Out Offering To Help Me Maximize My ERC–Are They Legit?

Beware of scammy communication from companies claiming that almost every business qualifies for the Employee Retention Credit.  These are opportunists exaggerating the ERC qualification levels for businesses.  The hard truth is not all businesses with employees automatically qualify.  These companies will offer to calculate your eligibility using this overly-generous viewpoint, then take a percentage of the total credit as their fee.  Overestimating these credits benefit them, not you, as you are ultimately responsible for the tax implications surrounding Employee Retention Credits.

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What If I Need Help To See If I Even Qualify For This?  What About Existing Credits I Took?  Who Should I Go To?  How Much Does It Cost?  

Our tax team is happy to open a discussion surrounding your eligibility and any ERC related filings.  We can help narrow down what you qualify for and/or review any previous filings for accuracy.  When it comes to taxes, peace of mind is priceless, however, if you are in need of this assistance we offer advisory for $250 per hour.  Feel free to reach out anytime, and take a look at our full tax service options to minimize this type of confusion for future filing dates.

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