Up to $26K Per Employee! What’s the Catch with the ERC?

At a glance

• The main takeaway: The window to claim the ERC for your business is closing. It’s important to know whether you qualify and act now.
• Impact on your business: Getting as much money as fast as possible shouldn’t be your goal. Rather, work with an adviser who knows your business and can build a defensible position for your claim.
• Next steps: Contact Aprio to assess your ERC eligibility and apply for the credit while the opportunity remains to do so.

The full story:

In the mail. On the radio. In your Facebook feed. Ads for the employee retention credit (ERC) are everywhere.

Perhaps you’ve had the same thought that I have when reading or listening to these urgent prompts to get your ERC credit now – the IRS wants to give me free money? What’s the catch? And, why now?

ERC Credits for 2020 and 2021 – Why now?

Eligible employers can still claim the employee retention credit retroactively for 2020 and 2021 despite the original filings for both payroll and income tax returns for those periods being previously due (and filed).  Eligible employers can claim the credit by amending previously filed quarterly payroll tax forms by submitting a Form 941-x for the period(s) for which the credit is being claimed.  However, this opportunity will only last for so long.

What is the ERC timeline?

The statute of limitations for the Form 941-x, the quarterly payroll tax form an employer files to claim the credit, is three years from the date the return is filed.  Understanding when the returns are considered filed becomes critical for determining when the timeline to claim the ERC expires.  Notably, the second quarter of 2020 was originally due on July 31, 2020, the third quarter was due on October 31, 2020, and the fourth quarter was due on January 31, 2021.  The same trend continues for each quarter in 2021 whereby the due dates were the last day of the month following the close of the quarter.  However, the Form 941-x instructions state that the returns are considered filed on April 15 of the subsequent calendar year.   Using 2020 as an example, each of the quarters would be considered filed on April 15, 2021, and therefore when applying the three-year statute of limitations, we arrive at April 15, 2024.  Despite the various due dates for the returns, there are only two deadlines: April 15, 2024 and April 15, 2025 for claiming ERC in 2020 and 2021, respectively.

Aprio’s ERC specialists have been able to help companies retroactively claim the employee retention credit for some period of 2020 and/or 2021. The opportunity is not gone just because it’s 2022. The same will hold true for businesses considering applying for the ERC in 2023, 2024 and early 2025!

Another area of confusion around the ERC is who qualifies.

Who qualifies for the ERC?

Companies who qualify for the credit under the gross receipts test notwithstanding, the question of whether or not your business qualifies for the ERC is generally a subjective one.

Was your business or organization suspended by a government order? Did a governmental order limit commerce? If the answer to either of those questions is yes, there may be an opportunity to build a defensible position to claim the credit.

While the program was certainly not designed for every business to qualify, there is latitude within the regulation. Understanding how it applies to your unique situation and your tolerance for risk is critical.

Who is an Eligible Employer?

As we discussed in our article on enhancements to the employee retention credit, to meet the IRS’ definition of Eligible Employer, a business must have:

• Been fully or partially suspended due to orders from the federal government, or a state government having jurisdiction over the employer, limiting commerce, travel, or group meetings due to COVID-19

OR

• Experienced significant decline in gross receipts* of what they were for the same calendar quarter in 2019

OR        

• (1) began carrying on a trade or business after February 15, 2020, (2) have average annual gross receipts that do not exceed $1,000,000 and (3) do not meet either of the other two criteria outlined above.

*A significant decline in gross receipts is defined as a decline of at least 50% in a calendar quarter in 2020 compared to the same calendar quarter in 2019 (or at least 20% when evaluating 2021).

While your business may not have been required to close due to direct orders, it could be deemed as “partially suspended” when you were not operating at “normal capacity” due to imposed restrictions from a government authority.

Or, a government order imposed on your company caused limitations, restrictions or other alterations to your day-to-day operations such that the new version of business as usual is no longer comparable to pre-COVID.

A company may be an Eligible Employer for purposes of the ERC from both direct and indirect causes.

These are just some of the intricacies that an experienced CPA and business advisory firm with your best interests in mind will advise you of when discussing qualifying for the ERC.

Finding the right CPA to answer your ERC questions

Finding the most qualified advisor to guide you through the ERC application process starts with asking the right questions. Instead of asking, “How long does it take to get an ERC refund?” ask if your risk tolerances align.

Listen for the adviser to say what we would at Aprio – that we want to get to know you, understand your business objectives and apply for the appropriate credit based on your unique situation and risk tolerance.

In a recent press release, the IRS warned employers to, “be wary of third parties who are advising them to claim the Employee Retention Credit (ERC) when they may not qualify,” saying, “Some third parties are taking improper positions related to taxpayer eligibility for and computation of credits.”

Specifically, IRS warned businesses to be cautious of “advertised schemes and direct solicitations promising tax savings that are too good to be true,” reminding taxpayers that they are “required to repay the credit along with penalties and interest.”

Ultimately, the best ERC adviser isn’t the person who can get you the most money as quickly as possible, but rather someone who knows you well enough to build a defensible position for your claim.

The bottom line

There’s still time to apply for the ERC for your business. But, it’s important to act now to claim what you’re eligible for.

Aprio’s dedicated ERC specialists are well-versed in the nuances of how to report ERC on your tax return and are prepared to help you maximize your ERC tax credit value while remaining compliant with all related regulations.

Contact our ERC team today for guidance on ERC eligibility and answers to all of your ERC refund questions.

Related resources

• Do Owners’ Wages Qualify for ERC?
• Who qualifies for the ERC?
• Is ERC Taxable Income? Get Your Top ERC Questions Answered
• Are U.S.-based Subsidiaries of International Companies Eligible for the ERC?