Before diving into the ERC Program’s Top 8 Myths, let’s give you a brief overview of what it is all about. The ERC was established to encourage employers to sustain their employees on their payroll, even when they weren’t working during the pandemic. This program provides job security and the ability to claim credit, which works best during unprecedented times.
However, as wonderful as this program is, the consistent changes in requirements and rules for credit qualification can overwhelm business owners, potentially confusing them. Payroll and the rules associated with it are already a head-scratcher.
Therefore, this new program which intends to aid those suffering from the pandemic, adds to the confusion. Numerous qualified employers have failed to benefit from this program because they worry they’re not qualified or fear making an expensive mistake in the application process.
Amid all the confusion, we have put together the truths behind the ERC program’s top 8 myths to simplify your experience with it. Continue reading this article for further information on the ERC program myths and facts.
ERC Program’s Top 8 Myths:
#1 You need a 50% fall in revenue to qualify
The notion that you need a 50% fall in revenue to qualify for the ERC program is entirely false. On the contrary, the fact is that the Consolidated Appropriations Act 2021 updated the requirement from a 50% reduction to a 20% fall for the initial 3 quarters in 2021. This rule applies to all businesses, even if they remain open or are essential during the entire pandemic.
According to the information in the IRS Bulletin 2021 to 2023, there are ways of opting for an alternative quarter election to simplify things. This allows the previous quarter to be reviewed when determining a 20% loss or higher.
The IRS Revenue Procedure 2021 to 2033 offers a safety zone and permits the removal of various gross receipts when determining your qualification for the ERC. These receipts include the PPP loan forgiveness amount, shuttered venue operator grants, and restaurant renovation grants.
To be eligible for the ERC, you must show that the business has partially or fully suspended operations. On the other hand, it is also important to provide proof of a substantial fall in receipts. Out of these two eligibility criteria, you only need to fulfill one.
ERC Program’s Top 8 Myths:
#2 You aren’t eligible because your business opened in 2019
This is an entirely false claim because all businesses that were formed in 2019 opted for the quarter when they started their operations as the foundation to determine the revenue falls on a quarterly basis. Therefore, this is applicable until the business is operational for a full year.
If your business was formed in the second quarter of 2019, the revenue generated during this quarter becomes the foundation. Therefore, the right method would be to opt for that amount as a determining factor when gauging the fall in receipts during the first two quarters of 2020.
Calculating employee retention credit qualifications can be fairly confusing. Therefore, it is best to seek a skilled individual to help you with the application process. This will ensure that you receive what you’re worth.
ERC Program’s Top 8 Myths:
#3 Your business does not qualify if it has participated in the PPP
At some point, this myth was true. However, the Emergency Coronavirus Relief Act 2020 eradicated that reality and altered the eligibility for PPP and ERC to co-exist. Therefore, the only possibility of employee wages not qualifying for ERC would be if they classify as payroll costs when acquiring the PPP loan forgiveness. Aside from these, all qualified wages fulfill the eligibility criteria for ERC.
ERC Program’s Top 8 Myths:
#4 You can only qualify if your business shut down during COVID-19
Numerous eligibility criteria directly affect a business. This includes limiting operational hours, a supply chain disruption, or a substantial fall in revenue. Various disruptions, including a semi-shut down, can act as the fulfillment of eligibility criteria.
Intended changes in working hours are not a semi-suspension. If your business has managed to remain above the water, but the rules forcefully reduced the number of operational hours, your business is eligible for ERC. However, the decrease in hours must be due to a state, local, or federal government order.
Fact: Talking to a TPG Payroll & HR Specialist can make your ERC Claim easier. Call us at 909.466.7876 today!
We’re here for you and your business. Book a meeting today and see what TPG has to offer!
ERC Program’s Top 8 Myths:
#5 Your business should have below 500 employees to qualify
The methods of counting employees vary for ERC and PPP loans. PPP opts for the method set by the Small Business Administration guidelines, while the ERC incorporates each employee for every pay period.
For the ERC, the calculation method requires counting only those that work for at least 30 or 130 hours each week. It is also possible to combine various part-time employees by combining the hours worked by one or more employees and dividing them by 130 to get an equivalent for full-time employees.
Your business may have more than 500 employees. However, if some of these are temporary workers or part-time employees, they do not qualify. It is important to ensure that you only file for eligible employee wages.
ERC Program’s Top 8 Myths:
#6 Your business’ revenue should decrease throughout the year
The ERC program considers calculations for every quarter individually. Additionally, you have to draw a comparison between each quarter and 2019’s same quarter when deciphering whether the business is at a loss and its percentage.
Let’s consider the following scenarios:
- Your business has a 75% decrease in revenue for the first two quarters
- Your business has a 10% loss in the third quarter
- Your business has a 50% decrease in revenue in the 4th quarter
You will be eligible for the ERC program for three quarters in the abovementioned year. The 3rd quarter will be ineligible because it does not fulfill the minimum requirement.
ERC Program’s Top 8 Myths:
#7 Non-profit businesses are not eligible for the ERC
On the contrary, all non-profit organizations such as hospitals, churches, and museums are qualified for the ERC. You may be allowed to file for up to $5,000 for each employee on your business’s payroll in 2020. On the other hand, you have the opportunity to file for up to $7,000 for every employee.
ERC Program’s Top 8 Myths:
#8 If you didn’t apply in 2020 or 2021, you have lost your chance to apply for ERC
It is, in fact, possible for eligible businesses to claim retroactive ERC credit if they haven’t applied for it in 2020 or 2021. 2022 brings them the opportunity to claim an updated Form 941-X. Additionally, the IRS permits fixing any necessary mistakes within the first three years of the original quarter to acquire a refund.
Conclusion
As this new program makes the payroll process much more confusing, it helps to take note of the Employee Retention Tax Credit Program’s Top 8 Myths. Therefore, make sure you’re aware of the eligibility criteria before stopping yourself from applying – out of a misplaced fear of being ineligible.
