Your company might be eligible for ERC tax credits of up to $5,000 per employee — even if you were previously told your PPP loan made you ineligible.
What started as a health pandemic has become a business pandemic. Many companies, even some that received Paycheck Protection Program (PPP) loans, continue to fight for survival. But some businesses can receive additional assistance thanks to provisions in the Consolidated Appropriations Act (CAA), 2021, which extends Employee Retention Credit (ERC) benefits until July 1.
And if you think changes to the ERC don't affect you because you got a PPP loan, think again. Yes, initially, businesses had to choose between PPP and ERC for pandemic relief. But now some businesses that took PPP loans are retroactively eligible for tax breaks of up to $5,000 per employee under the ERC. If your business qualifies, you don't want to miss this opportunity.
A Tale of Two Clients
I have a pair of bookkeeping and controller services clients who received PPP loans. Their very different circumstances provide a (highly) simplified overview of the revised ERC eligibility criteria under the CAA.
Client 1 took a huge hit right when the COVID-19 outbreak started — although, unlike some businesses, such as restaurants and gyms, Client 1 was never ordered to close. So they don't meet one of the two primary eligibility requirements for revised ERC eligibility: having endured a mandatory government shutdown.
Even so, the customer base that Client 1 served took such a severe hit that Client 1's revenues went into immediate freefall. Their April 2020 revenue was just 20% of what it had been in April 2019. And while they rallied a little in May and June, they never did make it to 50% of 2019's revenues for the second quarter. As a result, this business qualified for ERC relief under the second possible criterion: revenue less than 50% of the prior year for at least one quarter.
Client 2 also felt an immediate impact from the pandemic, but it was less severe. Like Client 1, Client 2 was never subject to a mandatory government shutdown. But unlike Client 1, they were able to continue operating at about 75% of capacity throughout the year. Since they didn't meet the 50% criteria for any quarter, they are not eligible for ERC relief.
But It's Not That Simple …
I shared the story of those two clients just to give you a basic go/no-go gauge for your own situation. If you received a PPP loan last year but were never ordered to close — and maintained revenue of at least 50% of 2019 for each quarter — you almost certainly don't qualify for revised ERC. Still, given that this is a fluid situation, that the ERC provision was included in the longest bill Congress ever passed (5,593 pages) and that bookkeepers, bankers, accountants and even the IRS are unsure exactly how it will play out — well, it couldn't hurt to ask.
And if you do meet one of the two criteria described above, it's not a simple matter of passing Go and collecting a $5,000 tax credit per employee. There are additional requirements, depending on the number of employees you have and how much you paid each of them. (For example, if you paid an employee more than $10,000 last year, you can't claim all of those wages under ERC rules.)
This Forbes article does a good job of explaining the basics of the CAA's ERC provisions and outlines a couple of possible scenarios for different types of businesses. I recommend giving this a close read as a starting point. Like me, you'll come away wondering why a development that could have such a positive impact on so many small businesses has received relatively little attention.
Ask for Help
The other thing the Forbes article makes clear is that the average business owner stands almost no chance of navigating such a complex piece of legislation on their own. (And even if you could, you'd be much better off directing all of your energy to rebuilding your business.) You're going to need help from your bookkeeper, your CPA — or both. Don't be afraid to ask.
Learn more about business continuity and PPP loan forgiveness.
At Supporting Strategies, our experienced, U.S.-based professionals use secure, best-of-breed technology and a proven process to provide a full suite of bookkeeping and controller services. Are you ready to learn how you can move your business forward? Contact Supporting Strategies today.