Employee Retention Credit: Top Ten Mistakes Of Business Owners And Their Advisors
Employee Retention Credit: Top Ten Mistakes Of Business Owners And Their Advisors
Employee Retention Credit: Top Ten Mistakes Of Business Owners And Their Advisors
With the passing of the CARES Act, businesses across the United States are looking for ways to reduce costs, cut taxes, and bring back employees. One important tool in the toolbox is the Employee Retention Credit (ERC). The ERC is a payroll tax credit available to employers who are experiencing a full or partial suspension of their operations due to the Coronavirus pandemic. While the ERC can be a useful tool, it is important to familiarize yourself with the rules and regulations behind it in order to properly implement and benefit from the credit.
Unfortunately, due to the complex nature of the ERC and the frequently changing guidelines surrounding it, many business owners and their advisors are either missing out on the ERC or making mistakes that limit their ability to take full advantage of the credit. Here, we’ll outline the top ten mistakes business owners and their advisors are making with the ERC and how to avoid them:
1. Not Maintaining Separate Employee Counts – The ERC requires employers to maintain separate counts of employees based on their location. Failing to do this can result in businesses missing out on the ERC.
2. Failing to Meet the Qualifications – In order to receive the ERC, employers must meet four qualifications. First, businesses need to show that their gross receipts are lower for the calendar quarter than the same quarter in either 2019 or 2020. Second, employers must demonstrate that full or partial suspension of operations due to government orders or health and safety guidelines has occurred. Third, the business must not receive Paycheck Protection Program loans. And fourth, employers must demonstrate they have reduced employee hours or wages by more than 25% in the same quarter.
3. Not Claiming the Credit Accurately – The ERC is complicated, and one mistake that’s easy to make is not claiming the credit accurately. For example, if a business reduces their employees’ hours by more than 25% for two quarters in a row, but does not claim the ERC for both quarters, they will miss out on the second part of the credit.
4. Failing to Calculate the Credit Properly – Calculating the employee retention credit can be tricky, and failing to do so properly can leave businesses shorting themselves during tax season. Businesses need to learn when they qualify, what wages they can include, and how to correctly calculate their credit..
5. Not Tracking Payments Accurately – When it comes to the payroll tax credit, businesses need to track their payments accurately. This includes tracking wages and payments to employees, as these are things that employers need to include when calculating their ERC.
6. Missing Opportunities Due to Recordkeeping Errors – Business owners need to keep detailed records of their employees’ wages and payments in order to qualify for the ERC. Failing to do so can lead to businesses missing out on the credit.
7. Not Leveraging the Tax Benefits of Group Employees – Businesses that employ a significant number of part-time and seasonal employees can take advantage of the ERC by claiming the credit for these employees. Doing so can result in considerable tax benefits.
8. Failing to File on Time – It is important to file the forms by the deadline in order to claim the credit, and businesses should not wait to the last minute to file. Doing so risks missing the deadline and not being able to take advantage of the ERC.
9. Not Coordinating with Tax Preparers – Business owners need to coordinate with their tax preparers to make sure they are up to date on their ERC filing status. This allows them to avoid late filing fees, as well as fines associated with missing or inaccurate filings.
10. Not Taking Advantage of Online Resources – The Treasury Department provides free online tools that can help businesses calculate the ERC and ensure accuracy when filing. Utilizing these resources can help businesses avoid costly mistakes in filing and maximize their credit.
Ultimately, the employee retention credit has the potential to significantly reduce business taxes and bring back employees. For businesses to take full advantage of the ERC, it is important for them to understand the rules, regulations, and guidelines associated with the credit. The mistakes outlined above can be easily avoided with a little bit of planning and research. By doing so, businesses can save money and reap the benefits of the ERC.
With the passing of the CARES Act, businesses across the United States are looking for ways to reduce costs, cut taxes, and bring back employees. One important tool in the toolbox is the Employee Retention Credit (ERC). The ERC is a payroll tax credit available to employers who are experiencing a full or partial suspension of their operations due to the Coronavirus pandemic. While the ERC can be a useful tool, it is important to familiarize yourself with the rules and regulations behind it in order to properly implement and benefit from the credit.
Unfortunately, due to the complex nature of the ERC and the frequently changing guidelines surrounding it, many business owners and their advisors are either missing out on the ERC or making mistakes that limit their ability to take full advantage of the credit. Here, we’ll outline the top ten mistakes business owners and their advisors are making with the ERC and how to avoid them:
1. Not Maintaining Separate Employee Counts – The ERC requires employers to maintain separate counts of employees based on their location. Failing to do this can result in businesses missing out on the ERC.
2. Failing to Meet the Qualifications – In order to receive the ERC, employers must meet four qualifications. First, businesses need to show that their gross receipts are lower for the calendar quarter than the same quarter in either 2019 or 2020. Second, employers must demonstrate that full or partial suspension of operations due to government orders or health and safety guidelines has occurred. Third, the business must not receive Paycheck Protection Program loans. And fourth, employers must demonstrate they have reduced employee hours or wages by more than 25% in the same quarter.
3. Not Claiming the Credit Accurately – The ERC is complicated, and one mistake that’s easy to make is not claiming the credit accurately. For example, if a business reduces their employees’ hours by more than 25% for two quarters in a row, but does not claim the ERC for both quarters, they will miss out on the second part of the credit.
4. Failing to Calculate the Credit Properly – Calculating the employee retention credit can be tricky, and failing to do so properly can leave businesses shorting themselves during tax season. Businesses need to learn when they qualify, what wages they can include, and how to correctly calculate their credit..
5. Not Tracking Payments Accurately – When it comes to the payroll tax credit, businesses need to track their payments accurately. This includes tracking wages and payments to employees, as these are things that employers need to include when calculating their ERC.
6. Missing Opportunities Due to Recordkeeping Errors – Business owners need to keep detailed records of their employees’ wages and payments in order to qualify for the ERC. Failing to do so can lead to businesses missing out on the credit.
7. Not Leveraging the Tax Benefits of Group Employees – Businesses that employ a significant number of part-time and seasonal employees can take advantage of the ERC by claiming the credit for these employees. Doing so can result in considerable tax benefits.
8. Failing to File on Time – It is important to file the forms by the deadline in order to claim the credit, and businesses should not wait to the last minute to file. Doing so risks missing the deadline and not being able to take advantage of the ERC.
9. Not Coordinating with Tax Preparers – Business owners need to coordinate with their tax preparers to make sure they are up to date on their ERC filing status. This allows them to avoid late filing fees, as well as fines associated with missing or inaccurate filings.
10. Not Taking Advantage of Online Resources – The Treasury Department provides free online tools that can help businesses calculate the ERC and ensure accuracy when filing. Utilizing these resources can help businesses avoid costly mistakes in filing and maximize their credit.
Ultimately, the employee retention credit has the potential to significantly reduce business taxes and bring back employees. For businesses to take full advantage of the ERC, it is important for them to understand the rules, regulations, and guidelines associated with the credit. The mistakes outlined above can be easily avoided with a little bit of planning and research. By doing so, businesses can save money and reap the benefits of the ERC.
