You may have heard of the employee retention credit (ERC), but you likely haven’t applied for it due to misconceptions about eligibility or the complexity of the process. This is despite the fact that ERC has become a popular topic among businesses today.
In case you have not heard of ERC, it is the acronym for Employee Retention Credit which is a government stimulus aid program that is designed to help those businesses that were able to retain their employees during the Covid-19 pandemic.
You most likely qualify if you were able to retain your employees during the pandemic and your business was affected by Covid mandates in some manner. If you have been told you do not, here are a few common misconceptions as to why you might have been told that.
- You were not deemed an “Essential business”
- You were profitable during 2020 and 2021
- You already received PPP
- You had to close your business permanently
- You missed the filing deadline
- You did not have to close your doors at all
- You did not have enough employees
- You are a non-profit
- The money has run out
Let’s break down each one of these common ERC misunderstandings in more detail.
Essential Business
Why the governments deemed certain businesses essential and others not, is a debate for another day. With that being said, it does not matter one way or another whether a business was essential to be qualified for ERC.
Profitable Business
This is probably the most misconstrued rumor that is circulating about ERC qualification. It could be because at one time back to the conception of ERC, this was true. Businesses that were profitable from year to year and quarter to quarter were the only ones that qualified. However, the CARES Act which lays out the qualifications for ERC has since been adapted to include the following qualifier:
a full or partial suspension of business operations due to government orders enacted in response to the COVID-19 pandemic (the “Government Orders Test”)
For example, all businesses that had a brick-and-mortar location with employees will most likely qualify.
Already Received PPP
Similar to the profitable business qualifier, there was a time when a business had to choose between filing for PPP or ERC and most chose PPP as it was easier and well-known. That is not true any longer, because in 2021 the CARES Act was amended to allow any business regardless of whether you received PPP or not, to qualify and receive ERC. Isn’t that great news? There is more money for your business after all.
Permanent Closure
Sadly, many businesses have had to close their doors permanently as it has been a rough road for them to try to meet all the government requirements to stay open. It was hard to keep going for some and you might have been forced to make this difficult decision. The good news is that even if you were not able to keep your doors open, as long as you kept your employees for at least one quarter in 2020 or 2021, you can qualify.
Filing Deadline
The more good news lies in that although the filing deadline has technically passed, there is a way to amend your 941 payroll tax forms and still receive the ERC funds. To qualify for 2020, you have until April 2024 and for 2021 you have until April 2025 for these amendments. Do not wait to get your money as even though you have until those dates, why let the government have your funds longer than necessary.
Doors Stayed Open
If you were able to keep your doors open throughout the entire pandemic for whatever reason, congratulations, that is commendable. Keeping your doors open would not disqualify you for ERC. The fact the govt required social distancing alone is probably enough.
Not Enough Employees
As long as you were able to maintain at least one W2 employee that was not you or a family member, you would be able to qualify. There are very few ERC companies that will help those that have under five employees but there are a couple and we know them. After all small businesses are just as important as the larger ones and sometimes have even less resources.
Non-Profit
Although this also probably pertains to a small percentage of businesses, the truth is non-profits also can qualify as long as they had W2 employees. There are some extra details on this, but without getting too deep into those individual requirements here, you owe it to yourself and your organization to reach out and talk to someone to get your specific situation answered.
No More Money is Available
Unlike the PPP, there is plenty of money for the ERC refund program. The IRS has established enough money for every business that qualifies. There is plenty of money and it will not run out. If you do not file for what has been aside for you personally, then that money will just be kept by the government. Who would want that?
To sum up, it is clear that there has been a lot of misinformation surrounding the Employee Retention Credit refund. This has prevented many businesses from claiming their rightful refunds. However, most businesses that kept at least some employees throughout the pandemic are eligible for this refund – so why not apply for it? After all, this money belongs to you!
