Employee Retention Credit – Opportunity to Eliminate Payroll Tax Liability

Sep 30, 2021

IBA, as the premier business brokerage firm in the Pacific Northwest, is firmly established as a respected professional service firm in the legal, accounting, banking, mergers & acquisitions, real estate, and financial planning communities.  Periodically, we will post guest blogs from professionals with knowledge to share for the good of owners of privately held companies & family owned businesses.  The following blog has been provided by Reed Showalter of the Alliant Group (www.alliantgroup.com):

Employee Retention Credit – Opportunity to Eliminate Payroll Tax Liability

To reward firms to retain staff during the pandemic, the government introduced the Employee Retention Credit (ERC) as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act. This credit offers a refundable tax credit against payroll taxes and provides an infusion of cash into businesses.

At the time of introduction, the ERC could not be claimed alongside PPP but the law was recently expanded to remove that restriction. Now the expansions have made the ERC is the single most powerful tax incentive available to business owners. Congress is considering ending the credit early so business owners need to look into this now.

What businesses are eligible to receive the credit

Since the ERC has been expanded, there has been quite a lot of confusion about how a business qualifies. Earlier, this credit was only available to companies that had not claimed PPP. Everything changed when the Consolidated Appropriations Act was passed in December 2020. Employers who have received PPP loans are now eligible to claim the ERC as well.

Also, ERC is now available to all eligible businesses through the end of the calendar year 2021, as well as for 2020. Many businesses are also assuming that they had to have suffered a drop in revenue to qualify but that is only one way to qualify. Businesses can be eligible if they have had a qualified business disruption, such as supply chain issues, interrupted operations, full or partial shutdowns, reduced hours, having to limit capacity due to social distancing or sanitation, or not being able to visit clients.

Despite the latest changes to the credit, many eligible businesses are still not taking advantage of its benefits. These businesses may be missing out on a credit potentially worth thousands of dollars per employee. For instance, a gym chain with 400+ employees was able to claim a $3.7 million credit due to limits on capacity and social distancing. A construction company that had difficulty switching to remote work and faced supply chain issues was able to claim a $1.6 million credit. Smaller companies can benefit as well. A manufacturer with only 46 employees was able to claim a $217,000 credit due to social distancing orders.

The Employee Retention Credit: Myths and Misconceptions

Although the Consolidated Appropriations Act makes the credit available to a much larger number of firms, many business owners are prematurely disqualifying themselves due to misinformation. The following are some common misconceptions to consider while determining your eligibility:

  • Previously, if you claimed PPP, you couldn’t claim ERC as well. But now, if you’ve already claimed PPP and/or had your loan forgiven, you can still take advantage of the Employee Retention Credit.
  • Many businesses that were deemed essential or did not have any difficulties think that they are not eligible. That is not true. If a supplier or client of that business was impacted, they can still qualify.
  • Even if your company grew during the epidemic, you might still be eligible as long as there was a qualified disruption.
  • If you have incurred a loss or are a non-profit and do not owe any taxes, you may still be eligible to receive the credit.

Receiving the Employee Retention Credit and maximizing your benefit requires more than just filling out a form or questionnaire, however; you must be able to verify your eligibility and back up your claim.

The Employee Retention Credit is one of the most significant tax credits available to your businesses now. Take advantage of it to gain a much-needed cash flow boost. It would be best to combine ERC with other lucrative incentives rolled out by Congress, such as the R&D Tax Credit. For claiming these incentives together, it’s best to enlist the advice of an expert. By doing so, you will maximize your benefits and ensure your business is in good standing with the IRS.

Reed Showalter is the Managing Director of the Alliant Group. If you have questions about the content of this article, the Employee Retention Credit, the Research & Development Tax Credit, or any area relevant to Mr. Showalter’s expertise please contact him at (916) 949-6904 or reed.showalter@alliantgroup.com.

IBA, the Pacific Northwest’s premier business brokerage firm since 1975, is available as an information resource to the media, business brokerage, mergers & acquisitions, and real estate communities on subjects relevant to the purchase & sale of privately held companies and family owned businesses.  IBA is recognized as one of the best business brokerage firms in the nation based on its long track record of successfully negotiating “win-win” business sale transactions in environments of full disclosure employing “best practices”.