Estimated read time: 4-5 minutes
Your business could be missing out on tens to hundreds of thousands of dollars in refunds.
If the Employee Retention Credit (ERC) doesn’t sound familiar to you, you’re not alone. Many businesses are either not aware of this credit or assume they don’t qualify.
As part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act in 2020, the purpose of Employee Retention Credits was to incentivize employers to keep workers on their payroll during the pandemic in 2020 and 2021. It also provided some tax incentives to new businesses that ban operations after Feb. 15, 2020. While 2021 is past, these refunds can still be claimed retroactively.
“Upwards of 50% of businesses aren’t really aware that these are out there,” Mellor said. “But it’s a substantial credit. It’s up to $5,000 per employee in 2020 and up to $21,000 per employee in 2021. So it could be a refund of up to $26,000 per employee for a small business if they qualify.”
If the idea of pocketing a potential $26,000 per employee piques your interest, here’s what you should know about ERCs.
Which companies qualify for the ERC?
Mellor and Associates’ Employee Retention Credits website lists three main ways to qualify for these refundable payroll tax credits.
- You might be eligible if your business experienced “significant declines in gross receipts” in 2020 or 2021 when compared to 2019. This is determined at the quarterly level, so even if you only had a significant decline in one quarter, you may still qualify for refunds.
- You may be eligible if your business was fully or partially shut down due to government orders because of COVID-19 may be eligible – or otherwise experienced significant losses due to supply chain disruptions caused by government shutdowns affecting them or their suppliers, they may also qualify for the ERC.
- Finally, if you’re a “recovery startup business” — meaning you started operations after Feb. 15, 2020 and had less than $1 million in revenue in 2020, you may also qualify.
What if you already received a Payroll Protection Program (PPP) loan?
Even if your company received one or more PPP loans, you could still qualify for ERC. Initially, you could only receive one or the other, but additional legislation passed in December 2020 made ERC available to companies that received PPP loans – both retroactively into 2020 and going forward into 2021.
In addition, businesses that received two PPP loans are statistically more likely to qualify for ERC refunds due to some overlap in qualification criteria.
While the size of the refund varies greatly depending on the size of the business, the number of qualifying quarters, and other factors – statistically there is a very high correlation with ERC recovery (refunds) in relation to the business’s average PPP loan size.
How do I choose a partner to help me determine if my business qualifies and to claim the refunds?
Recently the IRS warned companies to “be wary of third parties who are advising them to claim the Employee Retention Credit (ERC) when they may not qualify.” They further warned them “to be cautious of advertised schemes and direct solicitations promising tax savings that are too good to be true”.
Extreme caution must be taken to ensure eligibility is clearly established and that the calculation of refunds owed is done properly and wages used towards forgiveness of PPP loans are excluded from otherwise qualified wages.
Mellor and Associates has helped hundreds of companies in Utah and surrounding states obtain significant refunds due to ERC. They have found and helped companies obtain refunds ranging from $1,700 to well over $1 million, with the average recovery being approximately $156,000. They are a full-service CPA firm providing tax, audit, and accounting services and are available to help you with this credit.
They start by providing a free, no-obligation analysis to determine whether your company qualifies and the approximate refund available to you. Qualifying companies will then be provided with a proposal to engage the firm in obtaining the refunds owed to them.
Determining if your business qualifies usually takes 15 to 30 minutes, so any associated refunds found will certainly have a high return on investment!
Call 385-446-4871 or visit their website at EmployeeRetentionCredits.com.