The Employees Retention Tax Credit (ERTC)
Employees Retention Tax Credit (ERTC) has been a significant lifeline for small businesses and nonprofit organizations during the COVID-19 pandemic. This program was designed to help employers retain their employees and stay afloat during these uncertain times. However, recent developments, including a temporary suspension and a withdrawal process initiated by the Internal Revenue Service (IRS), have brought some challenges to the ERC program. We will explore the background of the ERC, eligibility criteria, and the recent changes implemented by the IRS.
The Employee Retention Credit was introduced as part of the CARES Act in 2020 to help small businesses and nonprofit organizations struggling due to the economic impact of the COVID-19 pandemic. The goal was to incentivize employers to keep employees on their payroll, even if they had experienced a significant decline in revenue. The ERC provided a refundable tax credit to eligible employers, allowing them to recover a portion of qualified wages paid to employees during the pandemic. An applicant could be eligible for a total refund up to $26,000 per employee.
Eligibility Criteria:
To be eligible for the Employee Retention Credit, businesses must meet several criteria. These criteria include:
1. Business impact: Initially, the business must have experienced a significant reduction in gross receipts. This reduction is typically measured as a 50% decline in gross receipts in any quarter in 2020 compared to the same quarter in 2019. In 2021, the threshold was lowered to 20%.
2. Employee count: The size of the employer’s business also determines eligibility. Generally, businesses with 500 or fewer full-time employees are eligible for the credit.
3. Government orders: If your business faced partial or full suspension due to government orders, you may be eligible for the credit, regardless of the reduction in gross receipts.
Recent Developments:
The program has been very successful in achieving its goals. However, it was plagued with fraud allegations and applications were subject to further scrutiny by the IRS. Furthermore, many tax professionals got involved in aggressive marketing campaigns inviting more and more businesses to seize the opportunity and apply for the tax credit. This created additional pressure on the IRS and caused delays in processing schedules.
suspension of ERTC
On September 14, 2023, the IRS suspended the processing of new ERC claims due to a surge in questionable claim submissions. The agency cited a significant increase in potentially ineligible claims, which prompted the need for more detailed compliance reviews. This suspension is temporary until Jan. 2024, claims already submitted will continue to be processed. However, businesses may experience additional delays due to the enhanced scrutiny.
Application Withdrawal Option
In a follow-up development on October 19, the IRS announced a withdrawal process for Employee Retention Credit claims. This special initiative is aimed at helping businesses concerned about their eligibility or those who may have inadvertently claimed the credit under aggressive marketing or scam-driven schemes. The withdrawal process allows businesses to rectify their claims voluntarily, thus avoiding potential penalties or legal consequences.
The Employee Retention Credit has played a pivotal role in supporting businesses during the COVID-19 pandemic. Its temporary suspension and the subsequent introduction of a withdrawal process by the IRS underscore the need for businesses to ensure they meet all eligibility criteria and submit accurate claims.
As we navigate these challenging times, it’s crucial for businesses to stay informed about the latest developments surrounding the ERC and work with tax professionals or legal advisors to ensure compliance. This program has been a vital lifeline, and businesses must take the necessary steps to maintain their eligibility while also protecting themselves from potential pitfalls.
In the ever-evolving landscape of tax credits and relief programs, staying informed and acting with prudence is the key to making the most of available resources and ensuring the long-term sustainability of your business.
By Ryan Osman, CPA, MBA https://www.linkedin.com/in/raafat-osman-cpa-mba-b0991423/
Count on Renancial Consulting, CPA as your steadfast ally. Contact us to schedule your complimentary consultation today and experience our unwavering commitment to your financial success. https://renancial.com/contacts/
Q&A about ERTC:
Q: Can Renancial Consulting help me with ERTC if I am not located in Texas?
A: Our motto is “local roots, national reach!”
During the pandemic many companies adjusted to cope with the remote work requirements. At Renancial we didn’t just cope, we embraced the remote work culture and developed the tools to maximize work productivity. Today we stand to offer our clients seamless experience when filing for ERTC at very competitive rates.
Q: What makes Renancial’s tax preparation services stand out?
A: Renancial takes a personalized approach to tax preparation, leveraging our expertise to tailor strategies that optimize savings. We analyze individual situations, offering strategic insights that minimize liabilities and maximize benefits. Our tax solutions includes tax planning tips that can help you realize big savings on your personal and business tax liabilities.
Q: How does Renancial ensure accessibility for clients across multiple states?
A: Our online capabilities enable us to serve clients seamlessly, irrespective of their location. While our roots are in Frisco, Texas, our services extend nationwide, ensuring accessibility and convenience.
Q: Can Renancial assist in complex financial decision-making for businesses?
A: Absolutely. Our controller services focus on aiding businesses in making informed decisions through cost accounting, helping assess profitability margins and product portfolios.
