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8 Common Misperceptions About the ERC Tax Credit

The Employee Retention Credit (ERC) is a powerful grant provided by the Department of the Treasury.  Most businesses have heard of the program but have been hesitant to explore their eligibility because they were incorrectly informed about the rules.

The ERC rewards employers who retained employees back in 2020-21. While the immediate impacts of the pandemic are long over, many businesses still have not claimed the credit they are eligible for. Your business may be missing out on credits that can add significantly to your bottom line.

Check our list of ERC myths below to see if you may be eligible for the ERC after all, or contact us to learn more about your tax credit eligibility.

 

 

MYTH #1: ESSENTIAL BUSINESSES CAN’T QUALIFY FOR THE ERC.

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REALITY: SOME ESSENTIAL BUSINESSES ARE NOW ELIGIBLE FOR THE ERC.

Many essential businesses that remained open were nevertheless impacted by shutdowns when certain suppliers were required to suspend operations. If an essential business was unable to obtain critical goods or materials due to a supplier’s suspended operations, they may be eligible for the ERC.

Similarly, an essential employer that experienced a significant decline in gross receipts during the pandemic may be eligible for a tax credit.

 

MYTH #2: BUSINESSES THAT STAYED PROFITABLE AREN’T ELIGIBLE FOR THE ERC.

REALITY: YOUR BUSINESS MAY QUALIFY FOR THE ERC EVEN IF YOU WERE PROFITABLE.

To be eligible, your business must have been fully or partially suspended by government orders, or have experienced a reduction in year over year gross recipients of 50% in 2020 or 20% in 2021. Some businesses may meet the requirements for the ERC even if they were profitable in 2020 or 2021.

 

MYTH #3: IF YOUR REVENUE DIDN’T DROP BY AT LEAST 20%, YOU CAN’T QUALIFY FOR THE ERC.

REALITY: YOU MAY STILL QUALIFY FOR THE ERC EVEN IF YOUR REVENUE NEVER DROPPED SIGNIFICANTLY.

Businesses that were fully or partially suspended by government orders may be eligible for the ERC, regardless of how much or little of a revenue drop they experienced.

There are many definitions of what suspended means. At LG Resources, we can help you navigate these and other important questions about the tax credit. One of our partner companies, who consults with the House Finance Committee, co-authored the ERC, and we can help you understand the nuances around eligibility.

 

MYTH #4: YOU CAN ONLY QUALIFY FOR THE ERC IF YOUR BUSINESS SHUT DOWN.

REALITY: YOU MAY QUALIFY FOR THE CREDIT EVEN IF YOUR BUSINESS NEVER SHUT DOWN.

Businesses that continued to operate throughout the pandemic were often still negatively impacted by COVID-19, and the federal government understands this. Businesses that did not shut down, but experienced a reduction in year over year gross recipients of 50% in 2020 and/or 20% in 2021 are still eligible for the ERC.

 

MYTH #5: NONPROFITS AREN’T ELIGIBLE FOR THE ERC.

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REALITY: NONPROFITS AND OTHER TAX-EXEMPT ORGANIZATIONS MAY QUALIFY FOR THE ERC.

Tax-exempt organizations have been deemed to be engaged in a business or trade for the purposes of the ERC, so they are eligible. Some schools, hospitals, museums, performing arts centers, churches, and other nonprofits have already taken advantage of the credit.

 

MYTH #6: BUSINESSES THAT RECEIVED PPP LOANS DON’T QUALIFY FOR THE ERC. 

REALITY: THE RULES HAVE CHANGED, AND BUSINESSES THAT RECEIVED PPP LOANS CAN NOW QUALIFY FOR THE ERC.

Initially, the ERC was not available to businesses that had received PPP loans. However, more employers are now eligible due to changes in late December of 2020. Congress revised relief options available to businesses affected by the pandemic, including refundable credits for retaining employees in both 2020 and 2021. 

The expansions create opportunities for previously excluded PPP recipients. PPP recipients can qualify for ERC with respect to wages that are not paid for with PPP proceeds.

 

MYTH #7: IF EMPLOYEES WEREN’T RECEIVING ANY COMPENSATION OTHER THAN HEALTH INSURANCE, YOUR BUSINESS CAN’T QUALIFY FOR THE ERC.

REALITY: GROUP HEALTH INSURANCE MAY QUALIFY AS WAGES FOR THE PURPOSES OF THE ERC.

Consistent with IRS guidance, group health plan expenses can be considered qualified wages even when no other wages were paid to the employee.

 

MYTH #8: IT’S TOO DIFFICULT TO FIGURE OUT HOW TO GET THE ERC. 

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REALITY: LG RESOURCES CAN HELP YOU DETERMINE ELIGIBILITY AND CLAIM YOUR TAX CREDIT, FREE OF CHARGE.

It’s not too late to receive the ERC!

You likely meet basic eligibility if your business had at least one W2 employee in 2020 or 2021, not including the primary business owner or their relatives. Next, your business would need to have been impacted in one of four ways: reductions in hours, services, or capacity due to a pandemic-era mandate, impacts due to supply chain issues, revenue reductions, or start-up date.

While the details of determining eligibility and the actual calculations can be very confusing, it pays to work with an experienced firm. At LG Resources, we have helped over 10,000 businesses secure 2.3 billion from the Employee Retention Credit.

What sets LG Resources apart?

  • Our attorneys and expert CPAs review and sign off on every case.
  • Your ERC team includes CPAs who serve as expert witnesses in IRS cases and former IRS employees. 
  • Our board includes a former US Attorney General, the current Utah State Attorney General, and Iowa's former Attorney General.
  • Our highly experienced team takes the time to answer your questions and streamlines the process.  We will not waste your time.
  • We provide an obligation-free analysis of your situation, including a full calculation of your claim amount.
  • Our success-based fee structure means you will never pay for our services until the money you are entitled to arrives in your mailbox

Set up a free consultation with us today to learn more about your tax credit eligibility. 

 

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