4 Myths About the Employee Retention Tax Credit

Because of the employee retention tax credit or employee retention credit, companies can get $7,000 for each employee in one quarter. That means that if they can prove they pay the minimum required wages to get the credit per quarter, they can receive up to $14,000 for each employee. For example, a 10-person company could receive $140,000, while a 100-person company could receive $1,400,000.

The point of this is to show what’s at stake. Businesses could receive a lot of money through this credit, but many don’t because of myths surrounding it. Here are some of the most notable misunderstandings about ERC and the truth about them.

1. If You Are Eligible For the PPP, You Do Not Qualify

While you cannot put the same portion of someone’s wages into the Paycheck Protection Program and the ERTC, if you have enough payroll to satisfy the requirements for both, you can qualify for both. The most recent act states that payroll costs cannot be used for both PPP and ERC. That means they cannot overlap during a period.

For example, a company could receive PPP money of $300,000. It has 24 weeks to use this money. It has ten employees to pay. However, the monthly salaries for these employees have decreased, and it takes the company 14 weeks to use this money. That means they provide each employee approximately $2,100 per week—the amount they pay their employees during the remaining ten weeks of the quarter counts towards their ERC.

2. If You Don’t Have a Decrease In Gross Receipts, You Do Not Qualify

To get the ERC, you have to prove that you either have a decrease in gross receipts or suspended operations for a period. You only have to meet one requirement. You do not have to meet both.

3. Your Business Is Open, So You Do Not Qualify

Most people harp on this. However, there are many ways in which a business can qualify for a partial closure. Two more commonly overlooked examples are when your operating hours are reduced or when your essential suppliers’ operations are suspended because of government orders.

These can include local officials imposing a curfew. For example, football fans may be used to enjoy watching games at a local sports bar. However, a local curfew can prevent this activity because it forces the sports bar to shut down early. Even though it was still open, it faced a partial closure. Therefore, it is eligible for ERC. The key is that the partial shutdown has to be due to local, state, or federal orders. A voluntary reduction in hours cannot cause it.

4. A Business With Over 500 Employees For PPP Also Has Over 500 For ERC

This depends on the situation. The SBA guidelines regulate PPP money. To get these funds, it must calculate the average number of people employed over the last 12 months. Any person who receives a paycheck must be included. Therefore, even employees working 5 hours a week temporarily count towards PPP numbers.

Meanwhile, the ERC uses IRS guidelines to estimate full-time employees. That means it considers employees who average at least 30 hours a week or 130 per month as full-time. Any employee who works this much is counted as one full-time employee. Part-time employees can be combined with other part-time employees to reach 30 hours a week, so multiple can count as one full-time employee. That means you can have fewer employees for the ERC than the PPP.

The rules of government credits are constantly changing. That can make it hard to keep track of what you qualify for. That can cause taxes to become more complex. When that happens, it can be easier to ignore the ERC than apply for them. After all, you are trying to juggle running a business and the rest of your life. That’s a hassle. It can get overwhelming. Just stop and prioritize your needs. Do your research. Look at the truth around the ERC. It might end up at the top of your list.