Employee Retention Tax Credit: Top Five Myths Debunked

Employers could get up to $26,000 per employee in an employee retention tax credit (ERC). Since it’s a refundable tax credit, some employers are receiving their ERC as an advance. This could be a check in the mail for taxes already paid or credits that exceed their tax liabilities. Unfortunately, many organizations are mistakenly assuming they can’t participate in the program. These are the top five common myths that HR and payroll experts find that employers believe about the ERC.

Top 5 ERC Myths

1. Your eligibility for the Employee Retention Tax Credit is affected by any PPP loan(s) you’ve received, had forgiven, etc.

While this wasn’t the case prior to 2021, employers that received PPP loans or had them forgiven are still fully eligible for the ERC. The only concern that employers may have is that the PPP loans they received could impact how much they claim for an employee retention tax credit. MP has been helping its clients navigate the interaction between the ERC and PPP loans to help its clients claim the maximum tax credit without jeopardizing full forgiveness of their PPP loans.

2. Your company isn’t eligible for the employee retention tax credit because it has grown over the past two years/didn’t experience a drastic reduction in business/has overcome its pandemic challenges.

Even if your company has weathered the pandemic with minimal issues, or if it has overcome its pandemic challenges, it may still be eligible to claim an ERC. You may still qualify if your organization experienced:

• a full or partial suspension of operation due to government orders, or
• a loss in gross receipts of 20% in any quarter in 2021 or 50% in 2020

Reach out to MP’s HR services team to learn more.

3. My organization is a non-profit, so we aren’t eligible for an employee retention tax credit.

Charities and non-profits could be eligible for significant ERCs. Churches, temples, synagogues, museums, nonprofits that offer services to families and children, nonprofit hospitals, and more could be eligible for large ERCs. This is especially true if they had to shut down or suspend their services temporarily due to government orders. The ERC is technically a credit against employer social security tax, a tax that both non-profit and for-profit organizations are liable for.

4. My business was an essential business or wasn’t ever partially or completely shut down during the pandemic.

Even if your organization was deemed essential, it may still qualify for the ERC if it was impacted by the pandemic or experienced a significant change in its business. If your company had to reduce hours, operate at a limited capacity, had interruptions in supplies or services from vendors, or experienced some other disruption of the business, you may qualify. Note that as mentioned above, a decrease in gross receipts during any quarter of 20% in 2021 or 50% in 2020 may also qualify your business.

5. My accountant didn’t mention the ERC, so I must not be eligible.

The ERC is a new and complicated program that many CPAs and accountants are just getting the opportunity to learn about now. The timing of recent changes to the ERC came at a particularly busy time for CPAs, just as they entered tax season. Claiming an ERC will require extensive documentation and knowledge of the program. It will also require true ERC expertise to maximize the amount you can claim.

MP’s HR and payroll experts have helped employers all over the US claim millions in employee retention tax credits and we’ve served over 75 clients to date. Let us help your organization claim its maximum ERC.