The Top 4 Myths About the Employee Retention Credit

March 23, 2021

30-Second Summary:

  • The Main Takeaway: Businesses could obtain up to $33,000 per employee if they are eligible for the Employee Retention Credit (ERC).
  • Impact on Your Business: Many businesses are leaving money on the table because they don’t understand how the ERC works.
  • Next Steps: Be proactive and debunk these four myths many businesses believe about the ERC, in order to maximize and claim your credit.

Work with an ERC expert like Aprio to fully understand your ERC eligibility and obtain the credit your business deserves.

The full story:

Did you know your business could obtain a tax credit of up to $33,000 per employee?

The Employee Retention Credit (ERC) — a fully refundable payroll tax credit designed to encourage businesses to retain employees through COVID-19 — can be a worthwhile benefit that makes a big difference in your balance sheet. But many companies are leaving money on the table because they either don’t know how the ERC works or they misunderstand how it applies to their business.

Below, we demystify the most common ERC misconceptions you should know.

  1. Your business didn’t have a significant decline in gross receipts, so you can’t accept the ERC.

  • Not necessarily. To be eligible, you must show that your business either experienced a significant decline in gross receipts or it suspended operations fully or partially due to the pandemic. You can accept the ERC if you only meet one of these tests — meaning you can have increases in revenue and still qualify!

  1. Your business is too big to qualify for the ERC.

  • Myth! Your business simply needs to meet the tests above to qualify for the ERC. The number of employees you have will drive how you determine qualified wages when calculating the credit for your business, but it has no impact on eligibility.

  1. Your business did not close, so you don’t meet the ERC’s government shutdown requirements.

  • The IRS’s definition of a government shutdown allows room for many different circumstances that can deem you eligible for the ERC. For instance, if you had to limit your operating hours due to an order requiring a local curfew, then you may qualify for the ERC. If you run an essential business and you could not accept deliveries of necessary goods and products due to a government order, then you also may qualify for the ERC. Read the fine print surrounding shutdowns to understand your eligibility or let Aprio do that for you.

  1. Your business can’t accept the ERC because you obtained a PPP loan.

  • You can’t “double dip,” using the same payroll costs toward both the ERC and forgiveness of your Paycheck Protection Program (PPP) loan. Under PPP guidance, payroll costs for loan forgiveness do not include qualified wages that are accounted for when determining the ERC. With the right wage utilization strategy, you can maximize the benefits of the ERC and PPP loan forgiveness.

  • The rules governing this section of the program are highly complex, which is why it’s essential for you to work with an ERC expert to understand how they apply to you.

The bottom line

Are you ready to claim the credit your business deserves? Let Aprio help. Our nationally recognized ERC team has a deep understanding of the nuances and complexities surrounding the credit and can guide you through the process in a seamless manner.

If you would like to schedule a consultation with our team, contact us today.

Disclaimer for services provided relative to SBA programs and the CARES Act

Aprio’s goal is to provide the most up-to-date information, along with our insights and current understanding of these programs and regulations to help you navigate your business response to COVID-19.

The rules regarding SBA programs are constantly being refined and clarified by the SBA and other agencies In certain instances, the guidance being provided by the agencies and/or the financial institutions is in direct conflict with other competing guidance, regulations and/or existing laws.

Due to the evolving nature of the situation and the lack of final published rules, Aprio cannot guarantee that additional changes or updates won’t be needed or forthcoming and the original advice given by Aprio may be affected by the evolving nature of the situation.

You need to evaluate and draw your own conclusions and determine your Company’s best approach relative to participation within these programs based on your Company’s specific circumstances, cash flow forecast and business strategy.

In situations where resources are provided by third parties, those services should be covered under a separate agreement directly with that service provider. Aprio is not responsible for the actions of any other third party.

Aprio encourages you to contact your legal counsel to address the legal implications of the impact of the CARES Act and specifically your participation in any of the SBA programs.

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About the Author

Justin Elanjian

Justin Elanjian, CPA, is the Partner-in-Charge of Aprio’s Paycheck Protection Program (PPP) & Employee Retention Credit (ERC) Services. As a national PPP expert, prominent speaker and strategic business advisor, Justin helps both lenders and borrowers navigate the complexities of the PPP. He also helps his clients realize benefits from other stimulus package programs, such as the ERC, and is committed to strengthening his clients’ balance sheets and helping them achieve what’s next. Justin also leads a team of more than 50 professionals who share his passion for helping businesses maximize the federal COVID relief programs.