ERTC FAQ
What is ERTC?
This is a tax credit, and shows up like a refund check. It is not a loan or a grant. If you qualify, you are getting your very own payroll tax dollars refunded back to your entity. This is quite possibly the most lucrative tax refund in history.
What is a 941X?
This is the 4-page payroll tax return amendment. It is the document that must be calculated and filed in order to get your ERTC tax credit.
How does it work?
Over the 2 years of the pandemic, 2020 and 2021, here is a high level example of how the ERTC tax credit may be calculated. For 2020, you can get up to $5,000 back per employee. So, if you have 10 employees and qualify, that is $50,000.
There have been 7 actual legal changes to this program and several more clarifications since its inception through the CARES Act. With the exception of the last change where President Biden took away the 4th quarter of 2021 for standard businesses (exception is new startup recovery businesses), the other changes have made these tax credits even more lucrative to businesses and organizations who qualify. For example, you can now get $7,000 back per employee per quarter. In some of the more restrictive states, you can get up to $2.6 million back for a 100 person company.
There are 2 ways to get them.
Test 1: Drop in revenue test. In 2020, you have to show a 50% dip in revenue on a quarter by quarter comparison (ex. 2Q2020 compared to 2Q2019). However, this test changes for 2021 to a 20% decline in revenue - again compared to the same quarter in 2019.
Test 2: There must have been government orders in place that caused a partial suspension of services (this is not necessarily a shutdown) OR you must have a more than nominal disruption to an area of your operation (10% or greater). For example, if through mandates such as social distancing, cleaning and sanitizing protocols, temperature screening, supply chain delays due to COVID-19, or other government orders you lost more than 4 hours from an employee in a 40 hour work week, that is 10%. Or you had a 10% disruption to operations prior to 3/12/20 when the pandemic emergency started. *Mask mandates do not qualify.
How do you apply?
This is the easy part. Simply click on the Get My Refund button on this page and complete the short form.
How long do I have to take advantage of this?
The law has changed 7 times already in the course of 3 years. There is nothing preventing the government from suspending this program altogether at any point. Time is of the essence only months remain.
I was told I don’t qualify.
There is more than one way to qualify for these credits. The volume of information contained in the over 1300 pages of law allows many businesses and organizations (such as churches) to be eligible for credits when they first thought they could not file for any. Forbes wrote an article stating they conservatively believe 70-80% of all US Small Businesses are eligible and should look into the credits.
I got a PPP loan so I can’t get ERTC.
While that was originally true, one of the many updates to the law came 12/27/20, and it stated that any entity that received PPP is now able to test eligibility and claim both ERTC and PPP!
I didn’t lose money, or enough money, to qualify.
The drop in revenue test is only 1 test of 2 to determine qualification. There is a second test based on government orders and business disruption or supply chain issues. The vast majority of entities that qualify do so under Test 2, by demonstrating disruption from government order, and those can be federal, state or local orders. The breadth of orders and disruption is significant and requires examination prior to calculations and filing.
I wasn’t shut down, so I am not eligible.
A full shutdown is not necessary. A partial suspension of services or operations is all that is required, so long as it is a more than nominal portion of the business or a more than nominal disruption to the business. Things like social distancing, occupancy limits, and mandated CDC and health guidelines and supply chain, just to name a few, will likely qualify your business. The definition of “shutdown” is defined much differently than it sounds and has over 700 pages of writing referencing what does and does not count.
I am worried I will get audited.
The IRS can respond to ERTC filings in 1 of 3 ways. The first is a Review, and this happens without the business knowing it is taking place. This sends a large filing (any 1 period over $250K) to a senior agent or manager for an extra “review” for fraud prevention. It simply slows down the process of getting your refund. The second, is an Exam, where the IRS will ask for proof of a single period filing, kind of like a mini-audit. Much simpler and easier to resolve. The last is the Audit, the Boogie Man we are all afraid of. The current statistics show a less than .1% chance of being audited even with an ERTC filing. Additionally, this will be a comprehensive audit of your business and personal income tax return. Your chances statistically remain the same whether or not you file.
Is there an audit period where I could have to give my refund back?
There is a 3 year lookback period (from the date of filing the return) where the IRS can choose to look back at a filing (5 years for a recovery startup business - those businesses who established their EIN 2/15/20 or later). For an amended payroll tax return, which is what is filed for the ERTC program, it is called Exam- not an audit- of your filing. IF the IRS chose to perform an Exam on your filing, we maintain all of the documentation and details to support the filing. We call this your audit trail, and we provide these documents at no charge for all of our clients in that event. If you choose to have us represent you to the IRS, we have a strategic partnership with a CPA firm to assist with this- or you can use a CPA firm of your choice. We would provide all documentation to whomever represents you. We are experts in the 1,300 pages of law governing the ERTC program as well as the documentation required. Additionally, we have a 100% success rate with the ERTC program and the IRS.