Employee Retention Tax Credit (ERTC) is a provision established by the U.S. government in response to the Covid-19 pandemic. It aimed to keep businesses afloat while simultaneously retaining jobs for employees. However, several misconceptions have been floating around this provision, which may deter people from exploring and seizing full benefits. This article aims to debunk some common myths and provide insight into the actual construction of the ERTC.
Myth 1: Only Small Businesses are Eligible
The most prevailing misconception is that ERTC is exclusively for small businesses. Initially, the CARES Act of 2020 did limit the ERTC to businesses with fewer than 100 employees. But the Consolidated Appropriations Act (CAA) of 2021 expanded eligibility to businesses having up to 500 employees for the year 2021.
Myth 2: Businesses Taking Paycheck Protection Program (PPP) Loans are Not Entitled to ERTC
Originally, businesses that took PPP loans were not eligible. However, the rules changed towards the end of 2020. The CAA permitted companies that received PPP loans to qualify for the ERTC, allowing business owners to double-dip benefits.
Myth 3: ERTC is a Loan
ERTC is not a loan – it’s a tax credit. This misinterpretation can deter businesses from taking full advantage of ERTC. It provides businesses with a way to offset their payroll tax liabilities, significantly benefiting their cash flow without adding debt burden.
Myth 4: ERTC is Automatically Given to All Businesses
ERTC is not automatically given and needs to be claimed by eligible businesses. It’s crucial for businesses to meet criteria and follow appropriate documentation to claim the credit. Sufficient records must be kept to prove that the business meets the qualification requirements.
Myth 5: ERTC Only Applies to U.S. Wages
While it’s based in the U.S., the reach of ERTC is broader than domestic wages. It also extends to ‘qualified wages’ which includes qualified health plan expenses paid or incurred to employees, making it applicable to more than just wages within U.S. boundaries.
Frequently Asked Questions
Can I claim ERTC if I have received a PPP loan?
Yes, businesses that have received a PPP loan can now claim ERTC due to changes stipulated in the CAA.
Is ERTC applicable to businesses of all sizes?
Yes. Initially, it was limited to businesses with fewer than 100 employees, but the regulations have expanded to include larger businesses up to 500 employees.
Is ERTC a loan that I will have to repay?
No, ERTC is not a loan but a tax credit provided to offset business payroll tax liabilities.
In conclusion, understanding these misconceptions can help businesses and taxpayers maximize the benefits of the Employee Retention Tax Credit. Adequate knowledge about the provision facilitates informed decisions that can significantly influence a business’s financial standing during challenging times.