Most companies qualify for the Employee Retention Tax Credit (ERTC), yet many aren't aware that this financial benefit is still available. Launched in March 2020 as part of the Coronavirus Aid, Relief, and Economic Security (Cares) Act, the ERTC encourages businesses to retain employees during the pandemic by providing substantial financial assistance to keep them on the payroll. The opportunity to claim the credit is still available and is open to more businesses than ever before.
The eligibility requirements for the program recently expanded to include companies that had already received a Paycheck Protection Plan (PPP) loan. It is also now open to any company with up to 500 full-time employees on average, instead of the original 100-employee maximum. That's good news to any company who hasn't yet filed.
Unfortunately, while most companies qualify, time is of the essence. Recent changes to the law lowered the credit amount to $21,000 from $28,000 per employee, and the credit terms and qualifications could easily change again. More companies are taking notice and applying, which could quickly drain the program of remaining funds. It also takes time to receive the refund checks back from the IRS - another reason why companies are moving fast to file their claims.
In my work at Zuma Payroll and Processing I come across this issue a lot. To simplify the eligibility requirements, I put together a shortlist of three questions to ask to help determine if your organization qualifies.
1. Did You Take a PPP Loan?
If you took a PPP loan, you still qualify! This is one of the largest misperceptions in why companies pass on the ERTC. Initially, businesses had to choose between PPP or ERTC programs. In December of 2020, the law changed, allowing businesses who had already received PPP funding to also claim ERTC credits. This change opened the door for more businesses to qualify and allowed them to do so retroactively.
However, the application includes a lot of gray areas and can be overly complex for business owners and CPAs who don't specialize in ERTC. The ERTC is a payroll tax, and many CPAs prefer that payroll specialist firms like Zuma handle the ERTC for their clients. In our team's work with processing hundreds ERTC claims, we know first hand that most businesses that secured a first and second PPP loan have a good chance of qualifying for the ERTC. If you took a PPP, don't hesitate to apply for an ERTC.
2. Was Your Business Partially Down?
One of the most common scenarios for being eligible for the ERTC is if your business had been fully or partially shut down by government regulations. During the pandemic, millions of businesses that were deemed non-essential closed their doors. With so many businesses being forced to close, the natural candidates for ERTC qualifications are broad and include restaurants, retail shops, physician offices, law firms, contractors, catering halls, gyms, charities, museums, and even schools.
The "partially" shutdown requirement, however, isn't cut and dry. We worked with a large drug store chain that was deemed essential and never closed down. However, the company's hours were cut in half for a certain time period, enough so that it qualified for a partial shutdown. With our help, they were able to claim and receive a significant credit.
3. Did You Experience Revenue Loss?
If you had a certain revenue loss in certain quarters over the past two years, your business could be eligible. You may qualify for both years of credit or one, depending on the details of your situation. There are a lot of factors that go into determining how much and which years you may qualify for, so it pays to consult an expert who has a track record in filing and processing ERTC credits.
For example, a large restaurant chain came to Zuma for help in claiming the ERTC. We were able to turn the calculations around in days and determined that the business was eligible for only one year of the credit. However, that one year credit was a larger sum than they would have received if they filed for two years. It really depends on the individual circumstances of every business, so consulting a team with ERTC experts can go a long way in helping to claim the maximum benefit.
The ERTC is a tremendous opportunity for businesses to strengthen their financial positions. It can be a lifeline for many businesses and more companies should be filing and claiming this extraordinary benefit before it is too late.