Katherine Conley

How to Get the Employee Retention Credit

Due to the bill's complexity and overlap with the PPP loan timeframe, determining your eligibility for the ERC may seem difficult. However, this does not mean you should ignore the benefits of this program. Here are some suggestions that you can take into account to help reduce the pressure of credit application.

Verify your eligibility

The ERC can be qualified in two different ways. The credit is available to companies whose operations are either completely or partially halted by a COVID-19 governmental order while the order is in effect, or who have experienced a sizable drop in gross receipts.

The first day of the quarter in which a significant decline in gross receipts occurs begins the covered period, which ends on the last day of the quarter in which gross receipts increase by 80% or more compared to the same quarter in 2019.

A 2020 calendar quarter must show a decline of at least 50% from the corresponding period in 2019. The rules have been loosened for 2021, and a company can qualify if its gross receipts in a calendar quarter of 2021 fell by at least 20% from the same quarter in 2019. Employers may also be eligible for Q1 2021 based on a decline in gross receipts of 20% or more using a comparison period of Q4 2020 to Q4 2019.

Know the details of your PPP loans

Have you submitted a PPP loan application yet? If so, it's crucial to keep track of your loans, especially if you intend to consult a CPA to determine your ERC amount. To accurately calculate your credit, CPAs need your PPP loan forgiveness period to know which payroll dollars you have claimed for loan forgiveness (or will need to use if not already applied for). This brings up our upcoming advice.

Never double dip

For PPP loan forgiveness, wages and health plan costs are not eligible for the ERC. Family First Coronavirus Response Act-paid expenses cannot be applied to the ERC or the PPP's loan forgiveness program. If your company claims wages for other tax credits, such as the Work Opportunity Tax Credit or the Research and Development Tax Credits, the expense allocation becomes even more challenging.

Keep all of your paperwork

It is now even more important to securely store all of your tax records to be ready for an IRS audit or SBA inspection because of the new legislation and tax guidance that have been released in response to the COVID-19 pandemic over the past year. Businesses must keep the necessary records in case regulatory scrutiny increases because there have already been numerous instances of fraud and abuse in connection with COVID relief programs that have been reported.

Consult a qualified individual

Applying for numerous loans and credits while making sure your information is accurate and following tax regulations is, to put it mildly, extremely challenging. This year is the ideal time to begin hiring a tax professional if your company doesn't already. To make sure you are following the rules and can get the support you need to keep your business running, you should seek professional advice on how to interpret recent tax guidance.

Can you advance the employee retention tax credit?

Yes, through the Electronic Federal Tax Payment System, qualified employers may request an employee retention tax credit advance. Instead of having to wait until they file their tax return to receive the full credit, this enables employers to receive a portion of it now. It's crucial to keep in mind that the advance is based on a projection of the credit the employer will be eligible to receive; the actual credit may differ. On the employer's tax return, any discrepancy between the advance and the actual credit will be reconciled.

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