The Employee Retention Tax Credit may seem like a myth to businesses in desperate need of financial relief post-pandemic. And, some things your business may have heard about the ERC tax credit may not be completely true. We have compiled a list of the biggest misconceptions regarding the ERC tax credit to separate the real truth.
Myth: The ERC Tax Credit Is No Longer Available
Especially in recent months, you may have heard that the ERC tax credit has passed its deadline. This is not true. For the 2020 tax year, the deadline for ERC is April 15, 2024. For the 2021 tax year, the deadline for ERC is April 15, 2025.
On September 14th, the IRS issued a moratorium that put a “pause” on the program. The IRS is still accepting ERC applications. However, they did take a pause on processing new claims. This is only a temporary pause that they used to help them determine how to best protect businesses from scams and ERC mills that promote submitting false claims to the IRS. Since the start of the program, the IRS has received a surplus number of false claims, resulting in their decision to take a step back and assess the application process.
If you are concerned about the ability to apply for the ERC tax credit, consult with one of our ERC specialists.
Fact: Businesses Can Still Apply for the ERC Tax Credit
Yes! You can still apply for the ERC tax credit, but the deadline is quickly approaching. This year (2024) is the first deadline. This deadline is for any businesses who are amending their 2020 tax return when applying for ERC.
There is no deadline, however, for the IRS to finish processing new claims. There are already delays plaguing the program. So, it’s best not to wait before submitting your application.
Myth: You Can’t Apply for ERC If You Receive a PPP Loan
Businesses are allowed to apply for the ERC tax credit, even if they received a Paycheck Protection Program (PPP) loan. However, businesses cannot use the same qualified wages that they used to apply for PPP when applying for the ERC tax credit. Both ERC and PPP require you to apply using qualified wages paid to employees during the pandemic. Make sure that you are not using the same wages to apply for both, or you could risk an audit or rejection from the IRS for ERC.
Facts: ERC Does Not Have to Be Paid Back Like PPP
The ERC is a refundable tax credit, unlike PPP, which was a loan. Businesses do not have to pay back an ERC tax credit. In fact, it is a credit that can be used towards reducing 2020 or 2021 taxes owed by your business to the IRS. If you receive more in your ERC credit than you owed for that tax year, you will receive the rest as a refund that can be used anyway you would like.
Myth: Every Business Earns $26,000 Per Employee from ERC
This is not entirely true. The amount that your business receives per employee is based on eligibility and qualified wages. To receive the total $26,000 per employee, your business would need to be eligible for every time frame of the ERC program in the 2020 and 2021 tax year. However, the 2020 and 2021 tax years have different eligibility restrictions for ERC. Not every business eligible for ERC in the 2020 tax year will qualify for the 2021 tax year.
Fact: Employees Need to Be W-2 to Be Used Towards ERC
Qualified wages determined by the ERC tax credit are through W-2 employees that were paid during the 2020 or 2021 tax year. Contract or temporary employees who were not W-2 employees do not count towards the credit, even if they were paid during the pandemic. If you are concerned about the eligibility of your business based on wages paid to employees, consult with an experienced ERC consultant to ensure accuracy on your application.