The Ten Most Common Misconceptions About the Employee Retention Tax Credit (ERC)

February 15th, 2023, 10:00 AM

When the Employee Retention Credit was created as part of the CARES Act in April 2020, it didn't receive much attention. The Payroll Protection Program was the real headliner of that law, and the Country was only a few weeks into shutdowns.

Fast forward to today, and the Employee Retention Credit is making headlines.  Significant changes to the program have occurred since December 2020, and because of the rapid pace of those changes, many businesses are being presented with bad information, ERC scams, and companies who didn't exist a year ago trying to process their applications. And unfortunately, a lot of this bad information is even coming from well-intentioned sources, like accountants, lawyers, and other business owners.

So naturally, there are a lot of misconceptions about the program. Too many business owners are talking themselves out of tens of thousands of dollars because they think this program is not for them. And they are WRONG!

This tax credit can possibly get you a check from the government of up to $5,000 per employee in 2020, and $7,000 per employee per quarter in 2021. So how do you know if this program is right for you? Simply put, this program is for you if:

  • You have employees,
  • Your business was affected by the pandemic,
  • You are interested in getting a check from the government, and
  • You want our firm to do all of the work for you.

We've assembled a list of the most common misconceptions we are hearing about the Employee Retention Credit (ERC), so that you don't talk yourself out of free money. Before you make an assumption or a decision based on bad information, give this list a scan and get more information from our free guide to see if your business qualifies.

These are the Ten Most Common Misconceptions About the Employee Retention Credit (ERC):

  1. "If my business received payment under the Paycheck Protection Program (PPP), I am not eligible for ERC."
    False. You can qualify for the ERC even if you received funds under the PPP. It doesn't matter whether you received a PPP loan, or you didn't.  And it doesn't matter whether your PPP loan was for Draw 1 or Draw 2, you can still get the ERC.

  2. "A business that did not qualify for PPP also does not qualify for ERC."
    False. The programs are unrelated. You did not have to take PPP funds in order to qualify for ERC.

  3. "A business is required to show a revenue decline in order to qualify for ERC."
    False. If you had a revenue decline, you may qualify. However, even if you did not have a revenue decline, an argument can be made that your business was impacted by Covid-19.  There are hundreds of pages of laws and rules interpreting this provision.  Don't assume that just because your revenue was flat (or increased) that you won't qualify for the credit.  On the other hand, if your revenue did decline, you may have an easier time qualifying for the credit.

  4. "Only businesses that were completely shut down qualify for ERC."
    False. There are a number of different ways to qualify and a complete shutdown is simply one of them.  You may also qualify if you had a significant revenue decline, or you were subject to a partial shutdown.

  5. "Essential businesses don't qualify."
    False. The primary purpose of this program was to maintain the number of people on the payroll. Being essential is not a determining factor in and of itself.  In fact, in the hundreds of pages of guidance on this issue, the IRS makes it clear that a hospital (essential business) could qualify since it could no longer perform elective surgeries.  Our office has studied this law, and we can tell you whether we think you will qualify or not.

  6. "Our business does not have enough income to utilize a tax credit."
    False. This is a refundable tax credit. The government can send you a refund check, even if you can't use the entire credit. And this is a payroll tax credit, not an income tax credit, so your income is not relevant for determining your eligibility.

  7. "My business does not qualify because we had a lot of turnover and/or we haven't maintained employee numbers."
    False. You can qualify even if you had employee turnover or didn't maintain the same number of employees throughout the pandemic.  The credit is based on the wages you paid to employees, regardless of whether they continued to be employed by you.

  8. "A business that increased the number of employees will not qualify."
    False. You can qualify even if your business grew in the past year.  In fact, if your headcount grew, you may be entitled to a larger tax credit.

  9. "The PPP process was confusing for business owners and the ERC will be equally as confusing."
    Ok, this actually isn't a misconception. This is really complex, and we are already seeing payroll companies asking their clients to sign liability waivers for messing this up. Our office has done extensive research into this tax credit and can do almost all of the work for you.

  10. "We can just have our accountant or payroll company take care of this for our business."
    Many accountants will tell you that your business does not qualify for ERC. Our firm has the tools and resources to find all of the ways that your business may qualify. We are knowledgeable on the recent changes to the law and will give you the best chance of qualifying. Plus, if you ever get audited, you will want to make sure you have strong evidence for why you thought you would qualify. Our office is providing written opinion letters to protect you in case of an audit. What's more, we've already helped more than 250 business owners claim over $250 million in ERC credits! 

Don't Make These Mistakes
The ERC can provide thousands, or tens of thousands, of much-needed dollars to your business.  Would you rather make a decision to forego this cash based on bad information, or are you curious enough to see for yourself? Click here to get more information about this program and see if you qualify.

Return to all Blogs

Have a
Contact Us

Message Us

By submitting this request for information, I agree that I have not entered into an attorney-client relationship and I am at this point only requesting information. I understand that I may only retain an attorney by entering into a fee agreement that will take place if and when it is determined that I have a lawsuit. Moreover, I understand that I will not be charged for a response to my questions set forth above.