*The IRS has stopped processing new Employee Retention Tax Credit (ERTC) claims for the time being. For more information, visit IRS.gov.
Transcript
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Gene (00:01):
Hey everybody. This is Gene Marks and welcome to this week’s Small Biz Ahead podcast. Thank you so much for joining me. This week I want to talk to you about the Employee Retention Tax Credit. It’s been in the news over the past couple of months because the ERTC has been on the minds of a lot of business owners. So first of all, let me take a step back and first of all, explain to you what this is. Okay? Then I’ll tell you why it’s in the news and I’m gonna give you some advice. First of all, the Employee Retention Tax Credit started back during the pandemic. It was originally launched in 2020 and then it was revised in 2021. It’s a tax credit, a refundable tax credit that’s basically rewarding you for keeping your employees employed during the pandemic. In 2020 and 2021…
Gene (00:53):
It started out with the last three quarters of 2020 and then most of all four quarters of 2021, the last quarter being if you’re a startup. But basically it works like this. If you were impacted by COVID, either your business was partially or fully shut down during 2020 or 2021, or if you suffered a revenue loss in a quarter in 2020 or a quarter in 2021 compared to 2019, same quarter, you might be eligible for the credit. And the credit is pretty substantial. In 2020, it’s a $5,000 credit per employee. In 2021, it’s up to a $7,000 credit per employee per quarter. And because it’s really in existence for three quarters in 2021 for non startups, three quarters, $7,000 a quarter per employee, plus 5,000 from 2020. You could be getting up to $26,000 per employee under this Employee Retention Tax Credit. And you have until as late as 2025 to amend your payroll tax returns to get your hands on this money because it’s a credit against the payroll taxes that you paid during the eligible quarter.
Gene (02:18):
And if you paid in payroll taxes, the government’s gonna pay you back. And even if your credit is bigger than the payroll taxes you paid in, the government will give you whatever the credit is that you are owed in cash. So it’s pretty amazing. Now, hold your horses because it might not be as big as you think it is. A lot of people are saying, oh, it’s a $26,000 per employee tax credit. Well, your business probably wasn’t affected for all of that time during 2020 and then all three quarters in 2021. So let’s not get ahead of ourselves. And also, if you got a paycheck protection program loan part of that forgivable loan program, any money that you were using in the calculation, any payroll dollars, you can’t use those same payroll dollars to apply for the Employee Retention Tax Credit. So you might have kind of, sort of used up that opportunity because of your PPP loan and you have any money left to try for your Employee Retention Tax Credit.
Gene (03:19):
So that’s certainly possible as well. There are other limitations too, like the size of your business and things like that. So it’s not, it’s certainly not cut and dry, but it is definitely worthwhile looking into, particularly if you were in an industry that was impacted by COVID. If you own a restaurant or a retail store, you absolutely should be looking into the Employee Retention Tax Credit because whether you were shut down fully or partially, you really, really could be eligible. I mean, I’m in Philadelphia and Philadelphia restaurants not only had shut downs in 2020, but even in 2021 during the first quarter during that the Omicron surge, there was significant limitations in what the restaurants in my city could do. Those limitations means they were partially impacted by COVID and therefore they would be eligible for this Employee Retention Tax Credit.
Gene (04:14):
So again, if you’re in the retail restaurant business, there’s no question you should be looking into this. If you’re in any business, it’s worthwhile looking into it as well. Don’t buy into these emails that you’re probably getting from unknown firms saying that you could be getting millions in credits or $26,000 per employee. They’re called ERTC mills. A lot of them are scams. And the problem has become so big that back in October the IRS issued a warning to small businesses saying, be aware of these ERTC scams or mills because a lot of those firms are not credible or not reputable. But it doesn’t mean that you can’t be eligible for the Employee Retention Tax Credit and you can’t get some help. My advice is to talk to a professional, talk to your accountant, talk to an attorney…
Gene (05:05):
Or even better yet, if you are using like a payroll service like paychecks or ADP or any one of those services, they usually offer their own separate services to test and to check whether or not you’re eligible for the Employee Retention Tax Credit. And if you’re already a customer of those services, they’ve got your data. So they can easily do that. I like using the payroll services, particularly the bigger companies cuz they’re all set up, they’re organized to do all of this. They know the rules really well and they’re credible and legitimate. So they’re not gonna take you down the path of applying for the credit if they themselves weren’t very certain that you were gonna get that credit issued back to you. Because they certainly don’t wanna face the liability. So ignore those emails that you’re getting from people you don’t know.
Gene (05:50):
Consider your accountants. But I recommend considering your payroll service if you have one, and using them to get the credit back. Listen, it’s a big potential opportunity to raise some cash this year, particularly in an environment where financing is getting tighter and interest rates are are getting more significant. So if you think that you might be eligible for the Employee Retention Tax Credit, have a go at it and see if you’re eligible. You’ve got until as late as 2025, the middle of 2025 to apply for this credit cuz you can just go back and amend your payroll tax returns that you filed. So you’ve got some time to do it, but you want to give yourself enough time in advance because you’re gonna have to get the data together. And just in case there’s any issues or problems you wanna leave yourself some cushion, but apply for the Employee Retention Tax Credit, look into it this year. Could be big money for you. Hey, thanks for listening. My name is Gene Marks and you have been listening to the Hartford’s Small Biz Ahead podcast. If you would like any tips or advice or help in running your business, please visit us at SmallBizAhead.com or SBA.TheHartford.com. I will be back next week with some other thoughts or tips or advice to help you run your business. Hope you found this interesting and helpful. I’ll see you again soon. Take care.
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Can you please email me contact info. I would like apply for ERC.
Thank you for reaching out! You can apply for the ERC with Accelerate Tax. They specialize in helping businesses maximize their ERC refund. This is their website:
https://thehartford.webflow.io/?utm_campaign=ERC_What_2_know_Page
How do I apply for the tax retention, and is it too late
Definitely not too late. Depending on the quarter you’re eligible, expiration doesn’t start until 2024. Reach out to Lendio, your accountant or your payroll company first and work with them on this. It’s complicated.
I heard that there is a required minimum number of employees. Can you confirm this please.
Hi Kimberly, that’s not true. There is no minimum.
I keep getting told because I have a leased payroll I don’t qualify but I paid taxes for my employees and we were affected and we are still playing catch up with all bills. How can we get our ERTC? This would really help us to get out of a hole we are still trying to crawl out off. Any help I’d appreciate!
My understanding is that the ERTC is available for employers that use employee leasing or PEOs. You should ask your leasing company about this or your CPA. Just because you “lease” your employees doesn’t mean that you can’t take advantage of other employer tax deductions and credits. Also, I have many clients with leased employees who received PPP loans.
Gene
Great article on the ERC. Not to be critical I think you have only told half the story. The ERC has been full of fraud and bad people. People have to be very careful, there are a great many third parties promising the moon and charging a fortune. The IRS is starting a huge audit of these. People are not being told the true story about amending returns and in some cases owing money from the amendments.
You are completely correct – there is a ton of fraud out there and the IRS has issued multiple warnings for small businesses about this. I recommend that all businesses who are interested in applying for the ERTC either use a CPA or their payroll company. Also try Lendio.com.
I volunteer with a non-profit. We have one salaried employee which we kept on rather than furlough her but in order to do so we had to take out a loan. Someone told me that applying for ERTC would affect Social Security. She is paid thru a payroll company and they never even brought this up to us(ERTC). Does it in anyway affect SS?
This has no impact on your employee’s social security. However if you successfully get the ERTC you will get money back on the employer’s portion of SS and medicare that you paid in during that period. Talk to your accountant or a good payroll company.
I filed for employee retention credit before and dont know which quarters were filed. Can someone at The Hartford help me with that?
Did you do the filing yourself or use a service or accountant? That would be the person to talk with. Otherwise you should contact the IRS directly about this if you don’t have a copy of the amended 941 return you used for the credit.
What % of refund or what $ amount would be reasonably expected by employer to pay for the company to evaluate and file?
Is there a step by step quide for employers to evaluate and file themselves?
Great question.
For starters, a qualified accountant or payroll firm should charge NOTHING to at least see if you’re eligible. Assuming you are then most of the accountants I see charge an hourly fee to do the work (as part of their tax services) and payroll companies can take anywhere from 20-30% of the refund received.
As for a step by step guide your best bet is to follow the instructions from the IRS here:
https://www.irs.gov/coronavirus/employee-retention-credit
Thank you for the great explanation and all the info on this!
You’re welcome, Margaret! We’re glad you liked it!
Would a church (with one W2 employee) that does not file any payroll taxes or other tax returns be eligible?
Unfortunately no. This is a payroll tax credit and can only be taken against your employer’s portion of payroll taxes paid in during 2020 and 2021. If you didn’t file/pay then there’s nothing to credit.
I’m curious though why you didn’t file any quarterly returns if you have a W2 employee.
We are not withholding and our employee is paying estimated taxes himself.
You might want to check on that setup Susan. Even if you’re not withholding you may still owe employer’s taxes for FICA and Medicare, as well as state taxes. You also have a legal responsibility to withhold and pay in employee taxes too. Please talk to your accountant about this.
We purchased an existing restaurant and began operations on Jan. 1, 2021. Being a new business, would we qualify? We kept the employees that were previously employed, but we do not have access to the prior owners financials.
Your startup may be eligible if you meet the following criteria.
– You started your business on or after February 15, 2020.
– Your annual gross receipts don’t exceed $1 million for the individual 2020 and 2021 tax years.
– You have one or more W2 employees, not including owner-operators or family members.
Talk to your accountant, your payroll company or try Lendio (we have an upcoming podcast on this) – Lendio.com
Hello,
This is very informative.
Are non-profits eligible?
Thanks.
Yes, nonprofits are eligible. The credit is taken against your payroll taxes.
I’ve completed the all the paperwork so how many years does it take them to process the ERT. My accountant said 6 months to a year. How can I follow up on the Status of the ERT with the IRS? The IRS website provides no method I can find.
It used to take 6 months to a year but the IRS has caught up to a lot of their backlog. We’re seeing 6-12 weeks. You can call the IRS customer service center to get a status here: 800-829-1040.
In 2020, the first quarter our Company was a sole proprietor. In 2020 the 2nd quarter, I incorporated as a Sub Chapter S. How would I file?
I’m not sure that matters because this is a payroll tax credit. But regardless the ERTC started in the 2Q 2020 so if you have to choose it would be subchapter S.
We are a family business, with nine employees, eight of which are family members (or wives of family members). I’m the owner and it’s me, my wife and several of my kids, their wives and a brother-in-law. We qualified for PPP 2x and were not shut down (Construction kept going.) I was told that we do NOT qualify for the ERTC because we are family, but wanted to check. Our company is in the $2-$2.5m per year range.
Hi Carlo, Family members/owners usually won’t be able to participate in the ERTC unfortunately.
As a restaurant owner, I have been bombarded with emails wanting to “help” me take advantage of the ERTC. I filed the 941-X forms for the quarters with our eligible numbers and included all qualifying documentation. I have not yet heard anything back from the IRS as to whether or not they will allow our credits.
As a small family owned business, I was frustrated that not only did owner & family payroll not count towards PPP eligible funds, but again did not count towards ERTC. I still had to cover those paychecks and make the payroll tax payments. I think very small businesses were hurt by the family exception rules that included all family members and in-laws. These were still employees that were being paid and all taxes had to be paid on their wages.
Thank you for sharing!
Once the information is submitted to the IRS, how long does it take to receive the ERTC?
Thanks!
It will vary but you can plan on 6 to 12 weeks. It used to be a lot longer!
Our Not for Profit went from in office to working remotely but business did not stop nor did we stop paying staff. It does not seem we are eligible for this credit. I should add that we received a notice (probably a scam) stating we were eligible for $780k. When I read the eligibility requirements, we did not meet them.
Definitely ignore that notice. There are a lot of scammers out there.
Unfortunately I’m not sure if you will qualify as you were not partially or fully shut down unless you were forced to scale back hours or cease operations during that period. Just working remotely wouldn’t do it.
Marion, the IRS has pretty extensive guidelines regarding covid “impact,” and how it affects your business. If you had to go remote, you may qualify under certain conditions, or if your state or local government issued any orders that would affect your business.
Gene- thanks for this informative Podcast… do you generally view Long Term Care and Assisted Living Residences as businesses that meet the definition of ‘having been impacted?’ Note many communities needed to purchase PPE, changed their marketing/lease up programs, changed their dining arrangements to allow for safe distancing, required masks, and hired agency staffing to deal with staffing shortages, among other things.
Thanks back. Long Term Care and Assisted Living Residences are definitely businesses but you have to still meet the specific requirements to qualify. Were you at least partially shut down during 2020 or 2021? Did your revenue decline? I think you may have a case but you should discuss with your accountant or payroll service company.
Hello,
Thank you for your ERTC explanation
I have received ERTC 1,2 & 3 for
2021.
Is ERTC 4 eligible for 2022 Quarter 1 ?
Congrats on that. It is not available for 2022 Q1.
I read there are eligibility requirements on ownership and employee relationship. For example, if you are an owner-employee with 50% or more ownership, you will not be eligible. Also, if the employees are related to the business owner, they are similarly not eligible. Are these true ?
Thanks.
There are definitely limitations to applying for this credit and you bring up a great point. The owner limitations that you mentioned do apply. I would suggest you talk to your accountant or payroll service company who can dig into the details of your structure.
So this doesn’t apply to independent contractors where owners are the employees?
Correct, it does not.
I used Paychex and had a bad experience with the ERTC. Paychex contacted me saying I could get a very large amount. I looked into the guide lines for being eligible and I was not. Paychex was going to charge me $6,400 (non refundable) if I got the ETC or not, and I had to pay upfront. I Did NOT go thru with it and cancelled the process before the Paychex deadline. Thank God, I would have not received the ERTC and would have lost $6,400. The $ would have been taken out of my Payroll account, because Paychex has my bank account #. Because they make my federal deposits for me and I also found out it can take up to 1 year before you get the $.
Thanks for the article. We are a small business and would like to take advantage of the ERTC. Our accountant does not handle it and we do not have a payroll service. Can you recommend a company that can file it for us taking a percentage?
Yes – try Lendio.com
From experience look for a company that does NOT charge upfront. I have seen company’s that get paid AFTER you get the $. My Brother was charged upfront by Paychex which is NOT refundable no matter when or if he gets the $.
I filed previously and was denied. I would like a 2nd opinion.
Hi Deborah, Can you share why you were denied? If you think the reason is wrong then talk to your payroll service – that’s your best bet.