Employee Retention Tax Credit is a lifeline for businesses

The COVID-19 pandemic brought many unexpected challenges to small businesses. And, for many, it meant closing operations for good. However, some business owners found a way to continue operating and paying their employees despite the hardships and uncertainties.

In March 2020, the federal government took action to support business owners who kept their employees on the job, despite bleeding bottom lines and introduced the Employee Retention Tax Credit (ERTC) to help pay employees during the COVID-19 pandemic when businesses were closed. Because the ERTC requirements and guidelines have changed over time, it is confusing for some to track where things stand today. Therefore, unfortunately, facing a mountain of red tape, many who could qualify for the Employee Retention Tax Credit (ERTC) have left money on the table. Fortunately, taking advantage of the program is more straightforward than they realize.

The credit explained

The ERTC is a refundable tax credit available to businesses, colleges, universities, hospitals, and not-for-profits that had a drop in revenue or were affected by government lockdown orders during the pandemic. A qualifying business owner can claim the credit retroactively. Unlike many of the assistance programs the government put in place, it is not a loan and does not need to be repaid. 

Businesses may be able to recover money even if they did not have a loss of revenue, received Paycheck Protection Program (PPP) funding or ERTC credits previously. Businesses can claim up to $5,000 per employee for wages paid in 2020 and up to $21,000 per employee in 2021. Actual amounts will vary depending on how much the eligible employees were paid in wages and health care benefits.

Eligibility 

Some of the qualifiers include:

• Having employees on payroll (W-2)
• Experiencing sales decrease in 2020 or 2021
• Needing to change the business structure, limit capacity, and partially shut down
• Modifying business to comply with COVID-19 regulations, even if it kept operating during the pandemic
• Suppliers failed to deliver critical supplies to you because they were shut down
• Business started in 2020

To qualify, a business must have had a drop in revenue by 50 percent or more in any quarter of 2020 or by 20 percent or more in any quarter of 2021. Alternatively, businesses can claim the credit if the lockdowns forced them to fully or partially suspend operations or reduce hours of operation.  

Some business owners may have hesitated to apply for the ERTC program because, early in the pandemic, they were forced to choose between the Payroll Protection Program, which was administered by the Small Business Administration, and the ERTC, administered by the IRS. However, the government changed the rules in late 2020, and now businesses can qualify for both programs.

Claiming the credit

Some small business owners may have decided not to pursue the credit because the paperwork is complicated, and there was no guarantee that they would be approved. Forced to choose between spending hours on complicated IRS forms or paying an accountant to do it for them, they chose to leave the money unclaimed. However, if you kept your workers on the job during the pandemic and your business experienced a drop in revenue or was affected by a lockdown order, there’s no reason not to apply for the ERTC.

There IRS requires that eligible employers use the correct filing form for each quarter that they wish to claim the credit. The good news is that the form can be used to file for up to three years after the original payroll taxes were due. It might sound difficult to navigate but with the right help it isn’t. 

Using the help of a law firm

Business owners are encouraged to seek the help of a law firm to apply for the ERTC. It only takes 45 minutes of a business owner’s time for a firm to complete and submit the application on their behalf, saving them valuable time and money. 

Among the many benefits, a law firm ensures that business owners apply to ERTC correctly and at a minimal cost. The main reason is that unlike accountants or payroll companies who make you pay upfront, our firm, for instance, will only charge a tax-deductible fee if we successfully recover money for your business and defend you at no cost if audited by the IRS. Business owners have nothing to lose.

Business owners have up to three years from when they filed their taxes for the relevant tax quarter to apply.

About the Author Michael Blom:

As partner at The Lake Law Firm, Michael Blom focuses on personal injury, pharmaceutical
drug injury, medical device liability and mass tort litigations. Mr. Blom works with attorneys
nationwide on mass tort case acquisition and co-counseling services. Mr. Blom also works with
business owners to recover refundable tax credits through the employee retention credit.