I want to revisit a topic from last year, including the subsequent results I’ve seen and the controversy that has been stirred up.
On August 16th, my blog post touted the benefits of applying for the Employee Retention Tax Credit, which I urged business owners to pursue. It turns out that more that 90 percent of small to medium-sized businesses can qualify for this tax credit. It is a credit against the employer share of FICA taxes paid in 2020 and 2021. There are a lot of rules and regulations to navigate here, but most businesses that apply are getting substantial credits.
I’ve urged clients and others to pursue this through ERTCFiling.com, since they’ve been doing a great job for those I have referred to them. The fees they charge are very modest.
The controversy has to do with many CPAs warning their clients away from applying for this credit on grounds that they don’t qualify. I’m a CPA myself and I really don’t understand the wariness over this. Even the American Institute of CPAs is spreading the word that taking this credit will lead to trouble, in the form of IRS audits later. The American Institute has warned of “ERTC Mills” that make promises that can’t be met.
I have to say, the ERTC providers I have experience with have done a great job, are honest, upfront and knowledgeable. I think many of the CPAs have just missed the opportunity to tell their clients some good news for a change and help those clients get a big government check.
I’ve been keeping score. Of the dozen companies I have referred and where I’ve kept track of the results, the tax credits total over $8.8 million. The amounts generally follow the number of W-2 employees the company had in 2020 and 2021. I’m finding that typically the companies are getting about $14,000 per employee. You can do the math.
So why the controversy? I went back to the actual CARES Act language, which isn’t easy with all the modifications that have been made. The reduction in revenue test to qualify is objective, easy to measure, and isn’t how most businesses qualify. The other qualification is, “…the operation of the trade or business…is fully or partially suspended due to orders from an appropriate governmental authority limiting commerce…” Given the edicts issued by the governor’s office during 2020 and 2021, almost any business can rightly say their operations were partially suspended. The Act does not further define the term “partially suspended,” while it goes to great lengths to define “appropriate governmental authority.” A careful reading of the law leads to the conclusion that almost any Washington business will qualify.
(I have run into one business that didn’t qualify—mine. Since I’m the only employee, and payroll to owners doesn’t qualify, I can’t get this tax credit!)
Of the clients and associates I’ve spoken to; the credits are being granted in full plus interest is being added. The IRS sends a letter by snail mail, one letter per quarter of credit applied for. The letter explains the amount of credit and interest that will be reflected on the paper check. These checks are generally received, again by snail mail, one paper check per letter/quarter, about a week to ten days after the letter. It is all very methodical and thorough. It seems extremely unlikely that the IRS would audit these at a later date and ask for the money back.
Some reminders. These payroll tax credits are taxable, unlike PPP loans. And the credit must be taken in 2020 or 2021 or both, which means amended tax returns. If it’s a pass-through entity, that means amended tax returns for the owners too. But it is worth it because of the amount of money we’re talking about. At first, the experience was that receipt of the credit would take six to eight months. The IRS staffed up and the turnaround time dropped to about four months and the most recent experience has been about three months.
It is not too late to apply for these credits, and unlike the PPP loans, there is no limit on the aggregate amount of credits to be granted to all taxpayers.
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