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Should you Consider the ERC to get cash back for your business?

It has been a whirlwind week of information overload and legislation and it’s hard to keep up.  Banks have been scrambling to figure out the Paycheck Protection Program loans. Big banks are pushing back application timelines and the community banks seem most nimble at the moment.  Everyone seems to be making this up as they go!

You may have heard about the new Disaster Recovery Loan and the Paycheck Protection Loan.  Some have jumped on this bandwagon and others are just catching up. Your friend may have told you you can get $10,000 up front from this loan and/or a business can pay wages, rent and utilities for 8 weeks and have that loan forgiven.  We are working very hard to bring you up-to-date information that is changing minute by minute.  

One piece of the CARES act we would like to spotlight as a good alternative option is the Employer Retention Credit (ERC). This credit appears to be a more accessible option for most employers than the Paycheck Protection Program (PPP). PPP loan applications are a bit messy and will leave many business owners out of luck due to limited government funds.  Since you may only take advantage of one or the other, It is important to make an informed decision. Very little information has circulated about the ERC, and we want you to know how powerful of an option it can be.

What is the Employer Retention Credit?

The CARES Act provides a refundable payroll tax credit for 50% of wages paid by Eligible Employers to certain employees during the COVID-19 crisis. The maximum amount of qualified wages taken into account with respect to each employee for all calendar quarters is $10,000, so that the maximum credit for an Eligible Employer for qualified wages paid to any employee is $5,000 per quarter. 

Can you benefit from the Employee Retention Credit?

  1. Was your business partially suspended due to government imposed restrictions?
  2. Are your quarterly receipts down by 50% compared to 2019?  
  3. Did you pay wages between March 12 and March 31?  Those wages will count toward the first quarter credit for ERC.  The credit is for qualified wages paid after March 12 through December 31, 2020.  So if you are an S Corp owner, you might want to keep paying wages!
  4. Self employed earnings are not eligible for this credit, but if you have paid wages as an owner your wages may qualify.

You must have proof of gross revenue by quarter for 2019 and 2020 to qualify for this credit.  This means that your bookkeeping must be in order. If you are not currently using software to prepare monthly or quarterly financial statements, you will need to do that now.  We can help you. 

Qualifying wages are based on the average number of employees in 2019.  Eligible employers will report their total qualified wages and health insurance costs for each quarter.  You can also receive an advance payment of the credit by submitting Form 7200

The Employer Retention credit offers cash relief immediately and may be a better option for business owners . Businesses of any size can take the ERC, and since each business situation is unique, we are encouraging our customers to reach out and let Sherwood Tax help you decide. We are also working with our payroll providers to find out the mechanics of how to claim the credit.  

Sherwood Tax has your back.  You will be receiving much more information from us in the coming days via email, website, and the Sherwood Tax  LinkedIn page. We are committed to helping our clients and their neighbors in getting cash to assist during this pandemic.