You may think you know about the employee retention credit program, but you may not have heard the full story.
We’re finding that even experienced tax professionals have been reluctant to tackle the details of the ERC, despite the pronounced opportunity it presents. They are instead endorsing the use of specialists with specific experience. This has spawned a niche industry of these specialist operators helping business owners realize the benefit of this federal stimulus program. As a result, companies like ERC Provider have emerged to help businesses navigate the details of this valuable federal program.
What Is the ERC?
The ERC program is an element of the CARES Act passed by Congress in response to the Covid-19 crisis. It allows businesses to recover up to $26,000 per W-2 employee in tax credit. It is not a loan, but a direct payment to businesses. Businesses that have used the Paycheck Protection Program and the Economic Injury Disaster Loan are eligible to benefit from the ERC as well. Revenue reduction is only one way to qualify, and 80% of companies are eligible based on other shutdown-related impacts.
The program is designed to benefit employers who kept their staff on board or otherwise retained those positions through the worst of the pandemic. It has evolved to expand eligibility to businesses that utilized other parts of the CARES act and offers a significant opportunity for many businesses not only to survive, but to thrive.
As a refundable tax credit, all sorts of businesses have benefited from the program, including hotels, gyms, transportation companies, retailers and hospitality businesses employing both full and part-time workers.
Why Are CPAs Asking Outside Firms for Help?
Many tax experts are realizing the benefit of the ERC but need specific expertise to take advantage of the program. It requires a series of payroll tax filings that most CPAs are either not familiar with or not completely confident in using. As a government program, the process of applying for ERC can be convoluted and confusing. Some business owners and even their CPAs often express concern about the consequences of unintended mistakes.
Even if you explored the ERC in the early days of Covid-19, you might find yourself pleasantly surprised if you take another look today. The ERC was expanded significantly for the 2021 tax year, with changes including increasing the per employee maximum to $7,000 per employee in 2021 and expanding the definition of “small business” under the program umbrella to 500 from 100 employees.
Groups that specialize in the ERC program can define eligibility and guide clients through the application process. The ERC substantiation process is both qualitative and quantitative, requiring a detailed interview with the business owner to determine how their shutdown impacts line up with the ERC regulations. The quantitative part of the filing is completed by dedicated payroll tax experts who analyze a company’s detailed payroll information to obtain the maximum credits. When guided through the process step by step with no risk exposure, and just a small percentage of the recovered payment charged, most businesses see the program as a no-brainer.
How Is This Niche Service Expanding?
Payroll tax firms, law firms, tax credit specialists, and other organizations have added ERC services to their offerings. There are also companies, like ERC Provider, exclusively dedicated to ERC filings that have served thousands of US businesses. Many offer referral programs to CPAs and accounting firms so they can benefit from sending their clients to these ERC specialist firms for help.
The ERC program has been a windfall for some businesses, but for others, it’s made the difference between keeping a successful business in operation and closing the doors forever. If you haven’t yet been able to assist your clients with the ERC, or if you don’t want to take the time away from your practice to focus on this credit, there’s a new solution. CPAs and accounting firms can now partner with ERC specialty firms to provide ERC services to their clients while avoiding the extra work and liability of handling ERC filings themselves.
This article does not necessarily reflect the opinion of The Bureau of National Affairs, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.
Sunshine J. Chapman is president and founder of ERC Provider, a niche consulting firm dedicated to helping businesses navigate the details and realize the benefits of the ERC program.
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