The Employee Retention Credit (ERC) helps businesses like yours that suffered economic impact and financial losses during the pandemic.
If your business struggled during COVID-19, you’re far from alone. There’s no denying that when COVID hit the United States, many companies and their employees were massively impacted.
The U.S. Bureau of Labor Statistics reports that temporary layoffs contributed to a record unemployment rate of 14.7% in April 2020—the highest contribution of temporary layoffs to unemployment in over five decades.
Meanwhile, according to U.S. Census Bureau, in 2020, the coronavirus pandemic “impacted the payroll of 45.3% of companies with employees. This breaks down to 39.2% having reduced the hours/benefits/pay of their employees, 5.9% increased the hours/benefits/pay of their employees, and 0.2% saw a different impact on their payroll.”
Although the U.S. economy has largely recovered to its pre-pandemic growth rate, the fact remains that thousands of businesses were forced to shut down, and millions of Americans became unemployed as a result of COVID-19.
In response, Congress passed The Coronavirus Aid, Relief, and Economic Security (CARES) Act to address the economic impact of the pandemic on businesses and families. The ERC tax credit has been designed to help businesses that retained employees during the pandemic by offering relief from certain employment taxes.
The ERC applies to the 2020 and 2021 tax years, and businesses may be missing out on retroactively claiming thousands of dollars of claimable tax relief.
Employee Retention Credit Experts can help you navigate the complicated ERC tax codes and ensure you receive the full payout to which you’re entitled.
Here’s what you need to know.
For businesses that “continued to pay employees while shut down due to the COVID-19 pandemic or had significant declines in gross receipts from March 13, 2020, to Dec. 31, 2021,” the ERC is a refundable tax credit designed to help.
The ERC came as part of the broader CARES Act COVID-19 relief stimulus plan, offered in response to the shutdown of businesses during the COVID-19 pandemic. Many of these programs continued under the Coronavirus Response and Consolidated Appropriations Act in 2021.
For 2020, the tax credit includes up to 50% of the first $10,000 in qualified wages paid by an employer between March 13th and December 31st if their business was wholly or partially suspended because of COVID-19 or whose gross receipts declined by more than 50%.
In 2021, the credit was increased to 70% of the first $10,000 in qualified wages paid—to include some healthcare expenses—during Q1, Q2, and Q3, and potentially Q4 for recovery startup businesses (subject to a $50,000 limit). In addition, the gross receipts threshold was eased to a more than 20% decline.
Businesses impacted by the pandemic can claim up to $5,000 in refundable tax credits for each employee on their 2020 payroll, and up to $21,000 in refundable credits for each employee on their 2021 payroll.
Many business owners may mistakenly believe they have missed their window to file, missing out on thousands of dollars in unclaimed tax credits.
However, the reality is that you have until April 15, 2024 to amend your 2020 payroll tax returns and April 15, 2025 to amend your 2021 payroll tax returns to claim your ERC credits.
See the full IRS ERC Guidance here.
Social distancing and capacity restrictions, quarantined employees exposed to COVID-19, increased sanitization, supply chain issues, and travel restrictions, among other governmentally imposed barriers, forced many businesses into partial or full suspension of their normal operations. ERC experts can help you determine how these interruptions impact your ability to claim these tax credits.
There are two clear ways to know if you qualify for the ERC:
In addition to these qualifications, businesses must generally also have had 100 or fewer full-time employees in 2019 to be eligible for the credit in 2020 and 500 or fewer full-time employees in 2021 to be eligible for the 2021 credit (as well as kept their employees on the payroll during eligible quarters in 2020 and 2021). Employers above such thresholds are only eligible for credits on wages paid to employees for not performing services.
Many businesses took SBA-backed loans through the Paycheck Protection Program (PPP), believing they couldn’t claim both PPP and ERC tax credits through the IRS.
However, your business can claim both PPP loan forgiveness and ERC tax credits, with some qualifications and exceptions. Here’s what you should know about claiming from both programs.
There are several ways to file for your company’s ERC. A common approach would be to use your in-house CPA or payroll specialist. However, the ERC rules are quite complex, and for businesses without in-house payroll processing, your CPA may or may not handle ERC filing.
While your team is qualified to handle a wide variety of complex accounting and payroll concerns, they may not specialize specifically in the ERC rules. If this is the case, they may prefer instead to refer the process to ERC specialists. ERC specialists are uniquely positioned to provide the expertise needed to prepare, review, and file for this tax credit without the risk of costly auditable missteps.
ERC experts have the specialized knowledge needed to navigate the complex rules enacted in regard to the ERC, as well as the other rules it references in the tax code. This allows them to maximize ERC credits and fundings for the businesses they represent. When ERC experts handle your claims, it also allows you to spend your resources on other tasks and at the same time relieve your worries about potential audits.
However, there are a few things you should keep in mind when seeking out an ERC expert.
The IRS warns of third parties offering to help businesses claim the ERC when they may not be eligible. These third parties may charge exorbitant up-front fees, mislead companies about their eligibility, the filing process, calculations, and income tax ramifications and solicit offers for tax savings that are too good to be true.
These third parties may outsource their services and often don’t have the in-house tax and legal experience needed to help businesses maximize their payouts within the letter of the law. This can lead to serious financial repercussions.
You need a firm that has experience working with the IRS and that can support you under audit. Only CPAs, attorneys, and EAs are qualified to provide comprehensive representation should you be audited.
A top-level firm will have established long-standing relationships with insurance brokerages who can source tax insurance policies. Law firms seeking to underwrite and evaluate ERC positions for insurance companies will hold these firms in high regard for their expertise.
When top national law firms form relationships with ERC specialists, their reputation is on the line. This usually indicates that the ERC organization is worth its salt and operating at the high standards these national firms demand. With strong backing from legal experts, this allows the organization to source tax opinions that improve the service they provide you as a business owner.
A business may qualify for the ERC when it has been forced to suspend its operations due to COVID-19 state and federal health regulations. You need a firm with specialized knowledge to navigate how and when the full or partial suspension of your business operations qualifies for ERC.
The right firm for your business will offer you expert insight and top-level services at a competitive rate to help you get the most optimized payout possible—all while keeping you audit-proof against IRS scrutiny. They’ll navigate the burdensome filing process for you so you can put your resources where they’re most effective.
Our ERC experts pride themselves on the fact that Sagemont Tax is a small business just like yours. If we’ve learned anything from the COVID-19 pandemic, it’s that we can thrive in these tough situations only when the small business community comes together to support each other.
Sagemont Tax offers a higher level of service because we specialize in the ERC rules and tax code, set apart from other ERC specialists by the combined expertise of our experienced lawyers and CPAs.
Company co-founder Casey Finigan Dettman came up with the idea for Sagemont Tax and presented it over a quarantine dinner to Kenneth Dettman, a CPA, partner at a top accountancy firm, and expert on the ERC.
Kenny’s large firm wasn’t interested in taking the small clients who qualified for this credit, but Kenny was, so Casey built a small website and used it to market and outsource these services to Kenny and other CPAs and other companies.
Kenny eventually left his large firm to become CEO of Sagemont Tax.
Since Kenny joined, the company has expanded over the past few years to over 50 full-time employees plus consultants and part-time workers. This means Sagemont Tax’s resources and bandwidth continue to grow so we can help more small businesses like yours.
When you trust Sagemont Tax with your tax credit needs, you get access to a range of high-quality services by credentialed experts with a proven track record, including:
At Sagemont Tax, we stand by our work and will defend it to the IRS within the scope of the engagement letter. Our credentialed, industry experts are backed by corporate partners that believe in the quality of the expertise and service we offer through our platform. CEO Kenneth Dettman signs every ERC claim as a paid preparer because we’re confident in our ability to help qualifying businesses maximize their ERC payout.
Sagemont Tax’s team of CPAs, lawyers, and payroll specialists combine their expertise to provide a uniquely holistic ERC service offering that ensures technical soundness unmatched by traditional income tax CPAs. At Sagemont Tax, we’re committed to excellence, and our brand is quickly being recognized as one of the top professional Employee Retention Credit firms in the United States. To learn more about how we can help you calculate, document, and claim your ERC, contact us here or call 754-202-3055.
