The Employee Retention Credit (ERC) is a valuable resource that can help companies navigate the complex world of employee retention, but understanding its intricacies and maximizing its benefits can be a daunting task. That’s where Tri-Merit comes in. With its expertise in tax incentives and credits, Tri-Merit is well positioned to guide companies through the complexities of ERC. In this article, they delve into the misconceptions of ERC. Canopy has partnered with Tri-Merit to help accountants better understand and help their clients with CKD.

There are a number of misconceptions surrounding the Employee Retention Credit (ERC). These wrong thoughts are made worse by a number of problems, including:

  • Legislation Updates
  • A series of updated guides from the IRS
  • Confusing and conflicting information
  • And a large backlog of returns to work at the IRS

This article is intended to highlight common ERC misconceptions and provide references to the most up-to-date information available.

Five Common Misconceptions We’re Seeing

Number one: The deadline to claim the ERC is soon.

No, there is no pressing deadline for file for CKDeven from the first availability in 2020. In other words, it’s not too late. The first official deadline is July 2023, and that has a slight potential to change if more legislation is passed (although that’s unlikely to happen).

Number two: it must show both a reduction in sales and the impact of government mandates

This is also wrong. It is correct to say that there are two ways to qualify:

  • Show a 20% reduction in sales compared to the same quarter in 2019.
  • Show that your business was directly affected by government mandates during the qualification period.

It is an “either/or” scenario, not an “and”.

Number three: Any government mandate counts toward the Employee Retention Credit

Virtually all state and local governments had some form of mandate during the pandemicbut only those orders that directly and unequivocally affected commercial sales are applied to the ERC.

Here are some examples:

  • If your business was able to switch to remote work and do all work related to your business, it may not mean you will receive the ERC. Simply going remote does not affect business operations.
  • Mask mandates are not really something that is directly related to a loss in sales, for most companies.

On the other hand, if you had a retail store where your local government did not have essential status, this would likely qualify because the store could not physically open, directly impacting sales.

Remember, it is government orders that directly impact sales.

Note: National mandates do not necessarily apply either. The federal government has never ordered specific businesses to close, and the CDC has issued guidance promulgated by state and local governments, if accepted.

Number four: the business was affected, but due to other factors

If your business experienced a drop in comparative sales, but the direct reason was not directly related to the pandemic, it is not necessarily applicable to ERC.

Perhaps the best example of this is today’s supply chain issues. Almost all businesses and individuals are affected by this issue, but it does not automatically qualify you for the ERC. The supply impact must be directly related to a Covid restriction.

If a supplier goes out of business because they don’t receive material to make their product, that doesn’t apply to the ERC. Another example is the recent freeze in Texas. If a business was dependent on a Texas business that was affected by the freeze and was unable to fulfill an order, the the business would be affectedbut not in a way that allows you to claim against the ERC.

However, if your supplier closes due to a Covid outbreak and you are unable to find a different supplier and this creates more than a 20% reduction in sales, you will likely qualify for the credit.

Number Five: Businesses that started at the end of 2019 do not qualify for the ERC

Rounding out our list of misconceptions about employee retention credit is this one. Businesses that started later in 2019 can still apply for the ERC. The tabulation is different in that you can’t compare Q1 2020 to Q1 2019, but there is guidance on how to do it.

All ERC related updates

Since the CARES Act was passed, new IRS bills and notices have been issued that affect how businesses apply for and receive the Employee Retention Credit. Below is a compiled list of these bills and notices.

Shades and cloudy orientation are frequent

As we’ve covered, there’s some bad advice out there about the Employee Retention Credit. Unfortunately, some who don’t qualify are likely to apply and may run into trouble once the IRS catches up and reviews everything.

On the other hand, there are many companies that probably qualify, but are scared off due to many of the misconceptions covered. Wondering if you qualify for the ERC? Schedule a discovery call with a professional Tri-merit. Their experts are fully up to date with all the guidance and will help you figure out the best strategy for your situation.

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