Employee Retention (Tax) Credits – Important, Updated Information
For some businesses, Employee Retention Credits (ERC), also referred to as Employee Retention Tax Credits (ERTC), have a bad rap based upon inaccurate information. Unfortunately, these employers may be missing out on getting a refund from the federal government.
PBO Advisory Group has worked with hundreds of businesses, some with a few employees and others with up to several hundred, to determine eligibility for the ERC program and to assist with the filing process. We are finding that many businesses that thought they were not eligible for ERC, in fact, are.
For some clients, that has resulted in a refund from the government of hundreds of thousands of dollars. Your actual refund will depend, in part, on the number of employees you had during the qualifying periods.
NOTE: We are using the word REFUND because that’s what you receive. Despite the program name including the word “credit,” you actually receive a refund, not a credit, toward future taxes you will pay.
Eligibility is determined in one of two ways.
- A mathematical calculation based upon the number of employees and revenue by quarter, for each quarter from March 13, 2020 to September 30, 2021. (As of November 2021, Q4 2021 revenue is no longer included in the program.) You may be eligible for refunds for some or all quarters.
NOTE: One lesson learned from our experience in helping clients with this process is that revenue by quarter may not always be reported correctly. Businesses may find they are eligible, even if previous evaluations determined they were not, by double checking financials to see if quarterly reports were incorrect and revenue should have been reallocated to a different quarter.
- Facts and circumstance. This subjective test is based upon financial and nonfinancial factors. You only need a fact or circumstance determination of eligibility or gross receipts reduction, not both.
PBO Advisory’s team of operational finance and accounting professionals is adept at quickly getting to the source data and evaluating your eligibility. There is no charge for PBO Advisory Group to determine your eligibility.
NOTE: Businesses that received PPP funds are also eligible for the ERC. However, you cannot claim the same wages for PPP loan forgiveness and Employee Retention Tax Credits.
Finalizing and Filing Your Claim
A claim must be filed for each quarter that you are eligible. The maximum refund you will receive is $7000, per employee, per quarter for the first 3 quarters of 2021 and $5,000 per employee for 2020. Your actual refund is based on multiple analyses of your data that are performed after your eligibility is determined. The deadline to file for an ERC refund runs through 2024. However, refunds can take several months to receive – see below.
Receiving your refund
Based upon our experience, claims are taking eight to nine months to be processed by the IRS and funds remitted back to employers.
Because you are filing a claim similar to a tax return, you may be subject to an audit, so it is important to make sure your claim is adequately prepared and reported. To date, we have not experienced any audits of ERC claims but that could change over time.
NOTE: We advise businesses that may be eligible for a refund to file their claim soon, rather than delaying the process. With refund checks now taking up to nine months to receive, this could become even longer, as the IRS will only be busier as we head into tax season.
PBO Advisory Group’s expertise in the ERC (aka ERTC) program is available to you. Please contact our Consulting CFO and Firm Member Scott Palka for more information.