Ask the Professionals About the Employee Retention Credit (ERC) (US companies)
November 10, 2022
Earlier this year, i-SIGMA hosted a webinar by guest presenter Daniel Risen, an Employee Benefits Advisor and Business Development Executive for OneDigital. Daniel shared with Members how to maximize the Cares Act Incentives via this webinar and a follow-up article in the iG Journal . You can access these here:
Following the webinar, i-SIGMA received a few member inquiries under our Ask the Professionals program and are sharing the responses.
Please Note: i-SIGMA is not a Certified Public Account and is not providing specific legal or accounting advice. We recommend that you reach out to your local tax professional to determine what specifically applies to your business in your local jurisdiction.
Question
Dear Ask the Professionals,
We are excited about adding ERC funds to the PPP money we already qualified for but I’m confused if these funds will be consider taxible income later on. Please advise.
Sincerely,
Tax Ignorant
Answer
Dear Tax Ignorant,
We reached out to CPA Kristina Morgan of Sechler Morgan CPAs PLLC, who advised us of the following:
Nonprofit entities will NOT have to file an amended tax return (other than the required payroll tax return).
For-profit entities WILL have to file an amended tax return for the years they claim the credit. Those amounts will increase the companies’ profits (or reduce losses or carryover losses) and will therefore be taxable.
i-SIGMA also discovered that if a business claims the credit and is not eligible but certifies that they are, this is considered tax fraud. As such, we advise our members to work with a professional to understand the many requirements and calculations that are involved, especially if they also received a PPP Loan(s).
Sincerely,
i-SIGMA & Professionals
Question
Dear Ask the Professionals,
I attended the webinar that i-SIGMA held regarding the Employee Retention Credit (ERC). We have a very small team with only a handful of employees. It seems that most firms want to work with large businesses and are focused only on revenue loss as a basis for applying for the credit. Do you have any information on the other ways of qualifying?
Sincerely
Small But Mighty
Answer
Dear Small But Mighty,
We followed up with Daniel Risen who did the presentation as well as spoke to other members applying for the credit. You are correct that initially, firms assess revenue. However, less than 5% of businesses that have received ERC have qualified under this criteria. (What qualifies? In 2020, if you saw a 50% drop in revenue, compared to the same quarter in 2019, you would be eligible for all of 2020. In 2021, if you saw a 20% reduction in revenue, compared to the same quarter in 2019, you would be eligible for that entire quarter in 2021.
More businesses qualify for ERC via the “Governmental Orders” criteria. If in your state or federally you were affected in your ability to conduct COMMERCE, TRAVEL, or GROUP MEETINGS by the pandemic under certain criteria, you could qualify. A few examples of qualifiers Daniel has seen within our industry in some states include:
- Supply Chain Disruption
- Requirement of the company to spend time and money on PPE to clean and sanitize equipment
- Furloughed Employees
- Sales were forced to go virtual (if you were unable to attend tradeshows or sales conferences)
- Employees may not be “active” all day or were forced to perform work outside of their normal job duties
One member did share with us that while his CPA was reluctant to work with him, after approaching another CPA, their business is getting back $250K. His advice was to keep looking for firms who are willing to sit and take the time to work with you!
Sincerely,
i-SIGMA & Professionals
Important: Some experts contend that since our industry was mostly exempted from the shutdown, due to our industry being deemed essential, some businesses may not qualify. We advise our members to work with a professional to understand the many requirements and calculations that are involved with your specific business and local jurisdiction.