Employee Retention Credit Update
Co-authored by Stanley Rose
A number of people have contacted us in recent weeks, under the impression that another round of Employee Retention Credits became available, or that some taxpayer-friendly corrections have been made to the existing iterations. The purpose of this article is to explain the current status of the “ERC” and dispel what appear to be some misunderstandings about the credit’s use or availability.
The ERC was deployed in March 2020 as part of Congress’ pandemic relief. It was expanded in late 2020 to allow greater use of its benefits, and a more robust version of the credit was extended into 2021. We discussed the credit’s feature and various changes in three articles published on April 1 of 2020, and on January 5 and January 7 of 2021.
Subject to a number of limitations described in the earlier articles, the credit amount can be as high as $10,000 per employee each quarter, so it can be extremely valuable to employers who qualify. There are two alternative ways to qualify. One is purely mathematical, and is based on a decrease in gross revenues due to Covid-19 disruptions. The other results from operations that were fully or partially suspended as a result of pandemic-related governmental orders. Those who qualify, but haven’t applied for the credit, still can do so.
What’s new – why the need for this update?
In a nutshell, there is nothing new on the ERC front – there is no new generation of the credit, and the last significant, authoritative guidance remains 1.5 years old. However, a number of existing and new firms have taken to the airwaves, screens, and newspapers; or have directly contacted taxpayers, with an offer to optimize the credit based on new interpretations of the credit’s rules, or in some cases, assertions that the rules articulated by Treasury are contrary to Congressional intent, and therefore calculations should be adjusted. For a percentage of the increased refund, these firms would be happy to prepare or amend the payroll returns that claim the credits.
We at BNN are aware that we have many peers and competitors who are highly competent, trustworthy, and well-versed in ERC rules. We do not intend to disparage them in any way. But there are other outfits who we fear many employers will fall victim to, who may encourage overly-aggressive filings (original or amended) that will not hold up to IRS scrutiny and potentially could even put the employer at risk of penalties.
There is nothing wrong with another fresh set of eyes on some calculations or a conclusion. But if your own fact pattern was already competently vetted, leading to some amount of the credit or a conclusion that you didn’t qualify, we are not aware of any new reason to revisit it, and we encourage our readers to be wary of claims that something dramatic has changed lately on the ERC qualification or computation front.
Disclaimer of Liability: This publication is intended to provide general information to our clients and friends. It does not constitute accounting, tax, investment, or legal advice; nor is it intended to convey a thorough treatment of the subject matter.