Frequently Asked Questions

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• The Coronavirus Aid, Relief, and Economic Security Act (also known as the CARES Act) was signed into law on March 27, 2020. It included two programs to assist businesses with keeping workers employed: the Payroll Protection Program (PPP) administered by the Small Business Administration and Employee Retention Tax Credit (ERTC) administered by the Internal Revenue Service.
• PPP is distributed based on 2.5 months of payroll, and a minimum of 80% of the funds must be used on payroll to be eligible for forgiveness. Additionally, PPP funds are not taxable as revenue, and you may still take deductions for the payroll covered by PPP.
• ERC is credits (or refunds) for a percentage of payroll in each quarter that you qualify for. There are specific rules for determining eligibility by quarter and limiting the dollars that can be claimed for each employee.

Even if you had a PPP or PPP-2 loan, you might still be eligible for an ERC refund check. While the CARES Act previously barred having an ERC and a PPP loan, the newly passed stimulus legislation (Consolidated Appropriations Act of 2021) removed this restriction retroactively to March 13, 2020. Your company can now have a PPP loan and an ERC return, but you’ll need to do some extra math on payroll wages and attribution. ProvenERC delivers these calculations and applicable schedules as part of a professional engagement.

• Initially, employers could apply for PPP or claim ERTC credits with the CARES Act, but not both. On March 11, 2021, The American Rescue Plan Act of 2021 was signed into law. It included many modifications and expansions to existing elements of previous stimulus programs. Significant improvements for business owners included: 
• Businesses that applied for and received PPP could now claim ERC. ERC credits could be retroactively claimed for businesses that qualified in 2020. 
• ERC got extended through 9/30/21 with lower qualification requirements.
• The per-employee cap on qualifying wages increased from $10,000 for all of 2020 to $10,000 per quarter for the first three quarters of 2021.
• The refundable credit amount increased from 50% of qualifying wages in 2020 to 70% in 2021.
• Now, you must reduce PPP from your ERC credit (but we have ways to minimize the PPP deduction and maximize the credit still)
• So the short answer is “Yes” you can claim ERTC even if you received PPP funds.

 Unfortunately no. You cannot claim credit for you, relatives, or any major shareholders in your business who get W2 payments. 

 You can use the credit for anything you’d like. There are no restrictions like other stimulus programs. 

No, this is a refundable tax credit. You will receive a check for you when we file your ERC claim. 

The difficulty is that the ERC credit is applied to your payroll taxes rather than your business income tax returns, which most CPAs handle. As a result, unless your payroll is processed in-house, most CPAs will not process this credit. This is also a significant reason for the credit’s underutilization. Because CPAs don’t usually handle it, even though they are tax specialists, it has generally fallen into a middle ground where just a handful can process the credit successfully. Surprisingly, CPAs account for a significant chunk of our client base.

We have decades of payroll experience at ProvenERC, allowing us to focus only on understanding and maximizing the ERC program. Due to the intricacy (the ERC tax code is over 200 pages) and the time investment required to comprehend the ERC program, we have found that only a few people can optimize this immense benefit for your firm effectively..

• Your bookkeeper should certainly have access to all the information you need to calculate your ERC claim accurately. They should have your financial reports, payroll registers, and PPP loan forgiveness documents.
• The Million Dollar Question is… Do They Have The Time? Did they approve these credits while working in the IRS like our former IRS Agents?
• Do they have the time to dig into the text of the American Rescue Plan Act of 2021?
• And its accompanying referenced laws like the CARES Act, Families First Act, Payroll & Healthcare Enhancement Act, PPP Payroll Flexibility Act, and the Consolidated Appropriations Act. 
• Time to read the IRS Interpretations and FAQ? And cross-reference those definitions with that of PPP, which was separately defined and dissimilarly interpreted in the Small Business Administration’s Bulletins and IFRs?
• Do they have the time to ensure accuracy in eligibility determination, maximize your computation and create the supporting documentation you’ll need to support an IRS audit of employer taxes?
• So far, we have yet to find a bookkeeper who can take all this on, while handling the day-to-day bookkeeping. If yours can, then take them up on their offer. We’re happy to take a second look.

• Why haven’t they already helped/informed you?
• Your CPA doesn’t know what they don’t know.
• They might need to be more confident/knowledgeable about the complicated program. They specialize in preparing taxes, not the ERC program.
• Many CPAs can do it for you hourly that you pay upfront; their incentive is not to maximize your credit as we do.
• Your CPA didn’t care enough to tell you before, and they will not give you full attention/support now that you ask them.
• There are countless instances where businesses come to us telling us that their CPA disqualified them, only for us to find out that the business is eligible for hundreds of thousands of dollars…
• The program has constantly been changing since its inception, and your CPA doesn’t have the time to keep up with the changes and new potential eligibility for your specific business situation.
• They could have a lot of the required documentation. Still, they don’t have extensive experience in the program, let alone experience working inside the IRS approving these credits for other businesses (like our former IRS agents do).
• Our service pays for itself because we can get you more than what our fee is.
• Many CPAs send their customers to us since they don’t specialize in the ERC procedure and don’t want to waste time dealing with the cumbersome process and payroll documents. These CPAs trust our former IRS agents’ knowledge to complete the process and payroll forms appropriately, maximizing potential credits for their clients.
• The program is not a black-and-white qualification; your CPA does not know the many complex variations to qualify you and get the maximum credit for each quarter and qualified employee.

• Your banker, CPA, or financial advisor was very helpful in getting your PPP funds because they were effectively signing you to an SBA-guaranteed loan. The SBA paid the bank administrative fees based on the PPP loans they made. So they were incentivized to educate you about the program and get all your paperwork in order.
• Compared to the ERC, the PPP program was a relatively simple calculation. 2 ½ times your average monthly payroll, including health insurance and state unemployment taxes.
• From our conversations with bankers, they have no interest in involving themselves in your employment tax compliance. For them, it is a liability and beyond their scope of services.

• Your payroll service does an excellent job executing the fundamentals of paying your employees, paying your employment taxes, and filing your quarterly reports.
• But computing your ERC requires visibility into your P&L and PPP forgiveness applications. Not only that, but the complex requirements around eligibility and allocating ERC at the employee level while accounting for annual and quarterly qualifying wage gaps and… well, you can probably tell why payroll services are only offering to do some of this for you.
• Payroll services we’ve worked with are happy to provide the payroll registers we need to perform the allocations. And they are happy to file the Amended Form 941-X with the IRS on our client’s behalf. But that’s the extent of it.
• Most payroll services ask clients to sign an indemnification waiver before submitting a Form 941-X because the payroll service can take no responsibility for the accuracy of the ERC you are claiming.
• For them to involve themselves in the intricacies of this calculation is a liability and is beyond their scope of services.

 An employer may include wages paid to part-time and full-time employees in the calculation of the ERC. The only limitation on calculating the credits is that an employer may only calculate the credits on the first $10,000 of wages and health plan costs paid to each employee during each credit-generating period. 

• Our former IRS agents developed and now use proprietary algorithms and methodologies that deliver a larger credit amount than others – on top of their extensive expertise and knowledge of the ERC IRS code since they approved these credits while working in the IRS. 
• One prevalent example is that, let’s say that you only had a revenue reduction in 2 out of 3 quarters, and most people would stop there and say that you don’t qualify for the third quarter. Instead, we find any possible way to qualify you for a third quarter in many different qualification methods.
• We qualify you for both the simple and complicated methods, which can qualify you for more quarters for more employees.
• Most people deduct your total PPP amount from your potential ERC credit and file for the remaining amount. However, we have proven methods to deduct the least amount possible, ensuring you get the maximum amount.
• Other examples include calculating wages in the best way possible to maximize your credit, determining other opportunities, defining and researching government orders/shutdowns in your geographic area, etc.

• Unlike other programs like PPP, there is no simple “application process.” You must assert to the IRS that you are legally eligible to claim the credit. You must file an amended employer quarterly tax filing and request a refund of excess credits.
• When you claim a child tax credit, you assert this fact on your Form 1020 Personal Income Tax Return. 

Another perk of ERC is that since you can often estimate these credits in advance of distributing cash for payroll, you can file a Form 7200 to receive a cash advance to avoid waiting until the end of the quarter to apply for the refund. (*Not to be confused with overcoming backlog*)

• Offset. The ERC will be allowed against the employer component of social security taxes beginning in the second quarter of 2020. Most employers will claim the ERC on IRS Form 941 (the Employer’s Quarterly Federal Tax Return) by reporting 50 percent of qualifying wages paid.
  • For example, suppose you paid any eligible wages between March 13, 2020, and March 31, 2020. In that case, you must account for 50% of those earnings and 50% of any qualifying wages paid in the second quarter of 2020 on your second quarter Form 941. The ERC has not yet been incorporated into Form 941.
• Refund. By completing Form 7200 with the IRS, ERC amounts more than the employer share of social security taxes that the employer is obligated for concerning all employee wages paid in Q2 2020 can be returned.
• Obtaining Payroll Taxes. The ERC can also be used to lower the required deposits of payroll taxes withheld from an employee’s salary for each quarter. Instead of paying the taxes with the IRS, the employer maintains the withheld payroll taxes in an amount up to the ERC that the employer reasonably anticipates earning for the quarter. This frees up cash flow by removing the need for a deposit.
• Important. Suppose the failure to make a timely deposit of employment tax was due to a reasonable expectation of the ERC being granted. In that case, the IRS is compelled to forgive any penalties.
  • The IRS recently provided instructions on how to claim the ERC. While the ERC rules are complex and demand careful study, there are significant benefits for qualifying firms who continue to pay employees during the remainder of 2020, especially when the ERC is returned and can be used to meet other tax obligations or business expenses.

The ERC is based on wages paid in 2020 and 2021, based on a calendar quarter, equivalent to 50% of each employee’s “qualified pay.”

• Wages. Wages have the same significance under the ERC as under the Social Security tax code, except that they include the cost of employer-provided employee health care benefits.
• Qualified Wages. Certain earnings are eligible if a company has 100 or more full-time employees.
• Employers with over 100 full-time equivalents, or over 500 in 2021. (FTEs). Wages paid to employees who are not providing services owing to I a COVID-19 Order or (ii) a significant reduction in gross receipts are only counted if the average number of full-time employees in 2019 was larger than 100. Wages for these workers can’t be more than what they would have been paid for working for an identical amount of time in the 30 days before.
• This number is 500 for 2021.
• Employers with fewer than 100 full-time equivalent employees or fewer than 500 for 2021 (FTEs). All salaries paid to employees during a period of economic hardship caused by a COVID-19 Order or a significant decrease in gross receipts are eligible if the qualified employer’s average number of full-time employees was 100 or less in 2019 and 500 or less in 2021.
  • The critical difference between the two categories is that the one with 100 or fewer full-time employees allows wages to be counted for all employees, even if they are not prevented from providing services. In contrast, the one with more than 100 full-time employees allows wages to be counted only for those employees who are unable to provide services due to the COVID-19 Order or a significant drop in gross receipts.

Limit on Wages. The ERC only applies to wages earned between March 12, 2020, and December 31, 2020. While qualified salaries are used to begin the ERC computation, they are capped at $10,000 per employee for all quarters. The maximum ERC per employee is $5,000, based on this pay ceiling and the 50% qualifying wage restriction.

For the first three quarters of 2021, from January 1, 2021, until September 30, 2021, the qualified salaries are capped at up to $10,000 per employee per quarter. The maximum ERC per employee is $7,000, for each quarter, based on this pay ceiling and the 70% wage restriction. This is a total maximum of $21,000 for 2021.

The $5,000 in 2020 plus the $21,000 in 2021 is how we get the $26,000 maximum credit per employee.

• Additional Constraints
• Wages are not recorded if they are taken into consideration under Sections 7001 and 7003 of the Families First Coronavirus Response Act, which gives refundable tax credits for most firms with fewer than 500 employees who pay qualifying sick leave wages or qualified family leave wages.
• Employers cannot claim the ERC and the Work Opportunity Tax Credit for the same employee during the same tax year.
  • If an employer obtains a Paycheck Protection Program (a “PPP Loan”) under Section 1102 of CARES, the ERC does not apply. If an employer applies for and accepts a PPP Loan, they will renounce future ERCs while reclaiming ERCs already taken. The exact recapture date is unknown; however, the Internal Revenue Service (“IRS”) has the authority to offer regulations and other guidelines regarding the ERC, including the recapture of the ERC when a PPP Loan is secured in a subsequent quarter.

Currently, there is a 16-week+ backlog. Prompt and thorough completion of the paperwork is essential to getting the refund quickly. 

The most complicated aspect of the ERC program, separate businesses under common ownership that meet IRS Controlled Group criteria must be evaluated together for eligibility. If the tests are passed, all entities are eligible; if not, none are eligible. The ERC is then calculated and filed for each separately. 

Yes! For 2020, there are two options: revenue decrease or “full or partial shutdown of your business due to COVID-19” The Internal Revenue Service (IRS) defines this as “During 2020 or 2021, a government agency ordered a partial or complete shutdown of your firm. This can include a lack of trade, incapacity to travel, or prohibitions on group gatherings limiting your operations.” A few examples of qualifying events are listed below:

Example A: A restaurant’s on-site eating must be closed or limited. Due to COVID-19 constraints, for example, every other table has to be shut off.

Example C: A company that requires in-person meetings with clients but cannot do so owing to COVID-19 constraints.

Example D: A business must lower its operation hours due to COVID-19 limits and cleaning regulations.

Example E: A company’s production timelines were pushed back due to supply chain problems.

Example F: Due to COVID-19 regulations, a company with a planned event must cancel it or limit the number of persons who can attend.

• There are various provisions and ways that we use to qualify you. An example that we can potentially do for you is to claim the credits based on previous quarterly declines retroactively, 
• Factor in that your business grew, so there is a relative revenue reduction, 
• Or even use the other rules for the program before they were updated.

• ERC is NOT a deferral. 
• They are dollar-for-dollar credits against wages you’ve paid, not taxes you’ve paid, but actual wages. 
• You never need to repay the funds unless the IRS finds you ineligible retrospectively (very uncommon, and not necessary to mention the negative).