ERC: Top 3 Misunderstandings, Explained

Employers across every industry are claiming Employee Retention Tax Credits (ERC) for hundreds of thousands– even millions– of dollars. While this program will significantly aid employers, it’s also confusing and technical. Businesses must follow the IRS’s complex process to claim their tax credit. They must also ensure full compliance to avoid future audits. MP’s HR and payroll experts address the three most common points of confusion about this highly beneficial program.

1. PPP loans and the ERC:

Eligibility for the Employee Retention Tax Credit is not impacted by any PPP loan(s) employers received, had forgiven, etc. After 2021, employers who received PPP loans or had them forgiven became eligible for the ERC.

While receiving a PPP loan (or even two) doesn’t make an employer ineligible for an ERC, it may impact how much they could claim for their tax credit. MP’s ERTC experts have helped thousands of clients strategically approach their claims, minimizing the impact of their PPP loans.

2. Deadlines and timeframes for the ERC:

Employers may be confused about when they are able to claim an ERC and when the program ends. These are the critical timeframes and deadlines:

• Employers may claim an ERC for any quarter in 2020 and the first three quarters in 2021. (This may change back to all four quarters of 2021, but it’s currently restricted to the first three.)
• Employers may claim an ERC for up to 3 years post the tax filing date of the quarters they will be claiming for their ERC.
• Employers may file claims for their ERC until the deadline listed above. However, they won’t be able to make an ERC claim after the funds for the program run out. The program received $80 billion in funding. Since it has been wildly popular among employers of all sizes and industries, it may run out of funding before the stated deadlines.

3. Financial struggles and the ERC.

Companies may still be eligible for the ERC, even if they’ve grown over the past two years, recovered from pandemic challenges, or never sustained a drastic reduction in business. Employers may still qualify if, in 2020 or the first three quarters of 2021, they experienced:

• Full or partial suspension of operations due to government orders
• A requirement to operate at a lowered capacity due to government orders
• Employee performance limited by a requirement to work from home, based on government orders
• An impact on ability to serve clients or customers due to supply chain issues created by government orders
• A disruption from service providers due to government orders
• A restriction on hours because of government orders requiring limitations on alcohol sales
• A restriction on use of the organization’s physical space due to government orders
• A restriction on operations due to government orders that limited gatherings
• A requirement for clients and customers to socially distance in work locations due to government orders
• A requirement to reduce hours for cleaning and sanitization based on government orders

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