The Employee Retention Tax Credit (ERTC) program was created to encourage businesses to retain employees on the payroll. Set up during the coronavirus pandemic, it allows businesses to access credit to continue paying wages to eligible employees. Since 2020, the refundable credit has allowed companies to remain open and keep their employees on the payroll.

Companies That Qualify for ERTC

Certain criteria help determine whether a business qualifies for ERTC. One of several factors must apply during the calendar quarter that the business wishes to use the credit. It must have had its operations partially or fully suspended due to government directives on reduced business hours. 

The company must have experienced a significant decline in revenue for the stated period. Other qualifications are being a Recovery Startup Business or having begun the business after February 15, 2020. Others are annual gross profits not exceeding $1 million and not being eligible for the program under other categories. 

Factors That Qualify You for ERTC
 

Some activities qualify businesses for ERTS. They include:
 

• Shift time spent cleaning, sanitizing, and wearing PPE.

• Reduced hours of operation. 

• Supply chain disruptions.

• Limitations on the people who can be in the room or building.

• Government mandates to partially or fully shut down.

• Disruptions to normal sales functions and limited operational capacity. 

• Inability to participate in networking events or work with vendors. 

• Reduction in goods or services offered to customers. 

• Canceled or delayed projects due to COVID-related problems. 

Misconceptions About ERTC Eligibility
 

Some misconceptions led businesses to lose out on ERTC benefits. The misconceptions include:
 

• The business must have experienced a decline in revenue. The truth is that revenue is just one factor, and businesses can qualify with little or no reduction. 

• A business that received a PPP (Paycheck Protection Program) loan cannot qualify for ERTC. The truth is that a business is eligible for ERTC even after receiving PPP funds.

• The business must be categorized as essential. Essential status does not count where ERTC is concerned, and many businesses qualify.  

• A business that was not forced to shut down does not qualify for ERTC. The fact is that disruptions and partial shutdowns also qualify. 

Why Your Business May Not Qualify

If your CPA told you that your business does not qualify for ERTC, it could be because you are self-employed. You are not eligible for the program if you are a single-employee business. The credit is for wages for an employee.

If you qualify for the credit, you are not likely to have missed the deadline. The credit can be claimed retroactively, and the statute for taxes continues for three years. Other exceptions are local and state government employers. 

Producing Proper Documentation

If you hope to receive a tax credit, you must be able to produce comprehensive documents. It is not enough to simply fill in a form and expect to receive thousands of dollars. Businesses must have documentation to ensure they qualify and avoid problems down the line. As a business owner, ensure you document how your business qualifies for ERTC. 

For more about CPA in relation to your business and ERTC program, visit Coomber Consulting LLC.