10 Misunderstandings of the Employee Retention Credit

The tax credit, Employee Retention Credit (ERC), was presented in 2020 as a part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act. During the COVID-19 epidemic, the ERC credit intended to assist businesses in keeping their workforce. However, a few misunderstandings regarding the ERC can confuse and cause a loss of chances. This blog post will address ten of the most frequent misunderstandings regarding the ERC.

Misunderstanding 1: Only businesses that were forced to close because of COVID-19 are eligible for the ERC

One of the most typical misunderstandings about the ERC is that it is only available to businesses shut down due to COVID-19. While the ERC is available to businesses shut down, it is also available to businesses that experienced a significant decline in gross receipts.

Misunderstanding 2: The ERC is only available to businesses with a certain number of employees

Another common misunderstanding about the ERC is that it is only available to businesses with a certain number of employees. Even though businesses of all sizes can use the ERC, the credit's value is determined by the number of employees.

Misunderstanding 3: The ERC is only available to businesses that did not receive PPP loans

Some businesses may think they are not eligible for ERC credit if they receive Paycheck Protection Program (PPP) loans. However, businesses that received PPP loans may still be eligible for the ERC.

Misunderstanding 4: The ERC is only available to businesses that experienced a decline in revenue in 2020

Only businesses whose revenue decreased in 2020 were initially eligible for the ERC. Since then,  ERC requirements have been extended to cover companies that saw a fall in revenue in 2021.

Misunderstanding 5: Only businesses that have been directed to shut down by the government are eligible for the ERC

Businesses that had their operations terminated by government order are eligible for the ERC, as are those that saw a sharp drop in gross receipts.

Misunderstanding 6: The ERC is only available to businesses that retained their employees

While the ERC is designed to help businesses retain their employees, it is also available to businesses that could not retain them due to circumstances beyond their control.

Misunderstanding 7: The ERC is only available to businesses that did not lay off any employees

While the ERC is designed to help businesses retain their employees, it is also available to businesses that laid off employees but then rehired them.

Misunderstanding 8: The ERC is only available to businesses that did not receive other COVID-19 relief

While the ERC is designed to help businesses impacted by the COVID-19 pandemic, it is also available to businesses that received other forms of COVID-19 relief.

Misunderstanding 9: Businesses that haven't already had their PPP loans forgiven are the only ones that can use the ERC

While the ERC is designed to help businesses impacted by the COVID-19 pandemic, it is also available to businesses that have received forgiveness for their PPP loans.

Misunderstanding 10: The ERC is too complicated to claim

While the ERC can be complicated, resources are available to help businesses claim credit. The IRS has guided how to claim the ERC. Also, there are tax professionals who can assist businesses with the process of ERC requirements. 

conclusion

The Employee Retention Credit is a valuable resource for businesses impacted by the COVID-19 pandemic. However, several misunderstandings about ERC credit can lead to missed opportunities. By understanding these misunderstandings with ERC professionals, such as from ERC Claim Credit, businesses can take advantage of the credit. Also, receive the relief they need to retain their employees and stay afloat during these challenging times.