You may think you know the employee retention credit program, but you may not have heard the full story.
We have found that even experienced tax professionals have been reluctant to address the details of the IER, despite the obvious opportunity it presents. Instead, they advocate the use of specialists with specific expertise. This has led to the emergence of a niche industry for these specialized operators to help business owners realize the benefit of this federal stimulus program. As a result, companies like ERC Provider have emerged to help companies navigate the details of this valuable federal program.
What is ERC?
The ERC program is one component of the CARES Act passed by Congress in response to the Covid-19 crisis. Corporations are allowed to refund up to $26,000 per W-2 employee in the tax credit. It is not a loan, but a direct payment to companies. Businesses that have used the Paycheck Protection Program and the Economic Injury Catastrophe Loan are eligible for ERC as well. Reducing revenue is only one way to qualify, and 80% of businesses qualify based on other impacts related to the shutdown.
The program is designed to benefit employers who have kept their employees on board or otherwise retained these positions during the worst of the pandemic. It has evolved to extend eligibility to companies that use other parts of the CARES Act and provides a great opportunity for many businesses to not only survive, but thrive.
As a refundable tax credit, all types of businesses have benefited from the program, including hotels, gyms, transportation companies, retailers, and hospitality companies that employ full-time and part-time workers.
Why do CPAs seek the help of offshore companies?
Many tax experts understand the benefit of ERC but need specific expertise to benefit from the program. It requires a series of payroll tax filings that most CPAs don’t know about or aren’t entirely sure about using. As a government program, the process of applying for an ERC can be complicated and confusing. Some business owners and even their accountants often express concern about the consequences of unintended errors.
Even if you explored ERC in the early days of Covid-19, you might find yourself pleasantly surprised if you take another look today. ERC has been significantly expanded for tax year 2021, with changes including increasing the cap per employee to $7,000 per employee in 2021 and expanding the definition of “small business” under the program umbrella to 500 from 100 employees.
ERC specialist groups can determine eligibility and guide clients through the application process. The ERC proofing process is both qualitative and quantitative, and requires a detailed interview with the employer to determine how the effects of the shutdown comply with ERC regulations. The quantitative part of the registration is completed by professional payroll tax experts who analyze the company’s detailed payroll information for maximum credits. When walking you through the process step-by-step without the risks, and only a small percentage of the refunded payment being charged, most companies see the program as a no-brainer.
How is this specialized service expanded?
Payroll tax firms, law firms, tax credit professionals, and other organizations have added ERC services to their offerings. There are also companies, such as ERC Provider, dedicated exclusively to ERC files that have served thousands of US companies. Many offer referral programs to chartered accountants and accounting firms so that they can benefit from sending their clients to these ERC specialist firms for assistance.
The ERC program has been a windfall for some companies, but for others, it has made the difference between keeping a successful business running and closing the doors for good. If you’re not able to help your clients with ERC, or if you don’t want to take time away from your practice to focus on that credit, there is a new solution. Chartered accountants and accounting firms can now partner with specialized ERC firms to provide ERC services to their clients while avoiding the extra work and responsibility of handling ERC files themselves.
This article does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or the publisher of Bloomberg Law and Bloomberg Tax or their owners.
Sunshine J. Chapman He is the president and founder of ERC Provider, a professional advisory firm dedicated to helping companies navigate the details and realize the benefits of the ERC program.
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