Employee retention credits, or ERCs, can prove invaluable for businesses struggling with high staff turnover costs. When done correctly, ERCs provide tax credits that offset the price of maintaining and attracting top talent. However, navigating the complex requirements to claim ERCs can overwhelm in-house business resources and derail other key priorities. This article will discuss the benefits of using an ERC originator for quick results.
Benefits Of Using An ERC Originator
Hiring an experienced ERC originator helps companies unlock the significant financial benefits of ERCs without diverting focus from core operations. With a network of experts and real-time access to legislative changes, ERC originators have the expertise needed to determine eligibility, maximize potential credits, and submit accurate applications on time.
By partnering with a dedicated ERC originator, businesses can ensure their retention programs meet all criteria to qualify for ERCs. This helps avoid penalties and denials from government audits that often find deficiencies in company-submitted applications. ERC originators also perform regular reviews to capture any newly available credits, strategizing how to modify programs or initiate new ones to increase the total ERC amount.
Rather than struggling through the process internally, companies can achieve maximum value with minimal effort by utilizing the services of a professional ERC originator. With the right guidance and support, businesses can realize sizable financial gains through ERCs and improved staff retention.
The ERC: Part of the CARES Act
As part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act passed in 2020, Congress provided tax credits known as Employee Retention Credits (ERCs) to help businesses retain employees during the COVID-19 pandemic. ERCs allow eligible employers to receive refundable tax credits for wages paid to employees after March 12, 2020, and before January 1, 2021.
To qualify for ERCs, businesses must have either fully or partially suspended operations due to government orders limiting commerce, travel, or group meetings (for commercial, social, religious, or other purposes); or experienced a significant decline in gross receipts. The tax credit amounts to 50% of qualified wages, including allocable qualified health plan expenses, paid by an eligible employer with respect to each employee.
While the CARES Act established ERCs as a critical lifeline for companies and workers, the complexity of associated rules and regulations poses difficulties for most businesses in achieving maximum benefits. Requirements cover issues such as which locations and employees qualify, calculating appropriate credit amounts, and ensuring proper documentation is retained. Substantial fines and audits loom for those unable to prove compliance.
Due to the complex nature and nuances of ERCs as defined by the CARES Act, engaging an experienced ERC originator is advisable for most companies seeking these important tax credits. Only by partnering with experts do businesses stand to successfully navigate requirements, optimize their ERC potential, and avoid penalties or disallowed credits that could outweigh any ERC benefits. With the support of an ERC originator, more companies can gain significant financial relief through ERCs despite the challenges of COVID-19.
What does an ERC originator do?
ERC originators, or employee retention credit originators, help companies determine eligibility and maximize potential tax credits through ERCs. As specialists in ERCs allowed under the CARES Act, ERC originators perform several key functions to ensure businesses achieve the greatest financial gain possible.
First, ERC originators review details about business operations, locations, employees, and wage payments to evaluate likely ERC eligibility and amounts based on CARES Act guidelines. They analyze how programs or policies would need to change to qualify for additional credits.
Second, ERC originators ensure proper documentation is in place, including information on hours worked, wages paid, health insurance costs, and more for all employees potentially included in ERC claims. They compile and submit ERC applications on behalf of companies to minimize the required internal effort.
Third, ERC originators routinely monitor updates to ERC legislation and regulations to recognize new opportunities for businesses to claim credits retroactively or prospectively. They modify existing programs and restart/refile applications as needed to capture the maximum ERC total possible.
Fourth, ERC originators handle the appeals process should any ERC claims get denied initially. They work with the IRS to provide additional documentation and make necessary amendments to ultimately secure approved ERC amounts for companies.
Fifth, ERC originators perform regular audits of ERC programs and credits claimed to minimize the risks of penalties or disallowed credits due to non-compliance or fraud. They make adjustments to further optimize ERC eligibility and amounts for future quarters.
How is an ERC originator different from a CPA?
While CPAs, certified public accountants, and ERC originators work closely together and share the goal of enhancing business financials, there are some key differences in their areas of expertise and services provided.
CPAs offer a range of accounting and advisory services, including financial reporting, compliance, and planning for various taxes beyond just ERCs. ERC originators specialize specifically in helping companies maximize financial gains through employee retention credits under the CARES Act. ERC originators have a much deeper, real-time understanding of ERC regulations, eligibility requirements, and opportunities.
ERC originators take on the full process of determining ERC eligibility, applying for credits on behalf of businesses, appealing any initial denials, monitoring for changes that could retroactively impact claims and amounts, and ensuring ongoing compliance to avoid penalties. CPAs may assist with some ERC-related tasks but have many other accounting responsibilities to manage as well. ERC origination is a dedicated focus.
CPAs review financial records and may make recommendations on managing costs, but they do not originate new credits or actively work to increase revenue through government incentives in the way that ERC originators do with ERCs. ERC origination aims to generate significant funds that offset key business expenses.
While CPAs charge hourly fees for accounting and consulting work, ERC originators typically work on a contingency basis, receiving a percentage of the ERC credits they were able to successfully claim on behalf of a company. Their compensation depends on and increases with the financial gains achieved through ERCs.
How can businesses use their ERC refund?
Once companies receive ERC refunds by filing amended returns or claiming ERCs on 2021 taxes, there are several strategic ways to use these funds to benefit the business:
•Pay down debt. Using ERC funds to pay off high-interest debt like credit cards provides an immediate return on investment through interest savings. This can strengthen financial stability.
•Increase cash reserves. Bolstering cash reserves provides an emergency fund with even more financial security, especially as the economic impact of COVID-19 continues. Extra reserves help ensure operations can continue even with unexpected costs or loss of revenue.
•Reinvest in the business. ERC refunds can be reinvested in key areas of business such as marketing, technology, or workforce training and development. This spurs future growth and improves competitiveness.
•Provide raises or bonuses. If able, all or part of ERC funds may be distributed to employees in the form of raises, bonuses, or additional paid time off. This shows appreciation for dedication and hard work while boosting employee morale, satisfaction, and retention.
•Cover operational expenses. If expenses outpaced revenue, ERC refunds can help cover rent, insurance, utilities, inventory, or other essential operational costs that were deferred or paid late. This prevents disruption of normal operations and reduced customer experience.
•Reduce next quarter’s taxes. Instead of refunding the full ERC amount, allowing some or all of the credits to offset income taxes payable for the next quarter reduces the total tax liability. The business retains more of the funds as working capital.
•Invest in new hires. ERC refunds can help finance the onboarding of additional employees to support growth. While demand for talent remains high, new hires boost capacity and better position the company for future success.
