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Don’t be afraid to miss out on the Employee Retention Credit

Apr 18, 2023

Marketing campaigns often use FOMO to get people to listen, and we can see this happening with the Employee Retention Credit (ERC).

You hear the advertisements, receive daily emails and pop-ups on the web: “Get the money you deserve.” They’re everywhere, saying you can get up to a $26,000 credit per employee. The volume of promoters has even led the IRS to include ERC scams on its 2023 Dirty Dozen list, which details the worst of the worst tax scams of the year.

As with everything, the devil is in the details, and a 30-second radio ad doesn’t tell you the full story.

What is the Employee Retention Credit?

The ERC is a legitimate credit created by the CARES Act — if you qualify.

The purpose of the credit is to help employers who continued to pay employees while their business was shut down during the COVID-19 pandemic or those who experienced significant declines in gross receipts. A business is eligible if it had full or partial suspension of operations due to COVID-19 based on a government order or a significant decline in gross receipts in 2020 through September 30, 2021.

Determining eligibility

To see if you qualify through gross receipts, use the bright line test. You need to have a 50% decline in gross receipts in 2020 when you compare the quarter to 2019 gross receipts. In 2021, the decline in gross receipts is just a 20% decline when compared to 2019.

The other test has allowed for creativity. Your business needs to have more than a nominal change to its operations due to a government order. The government order suspending your business operation would need to have been issued by your state or local government.

The IRS has said there was not any federal order issued to satisfy this requirement. Many municipalities exempted financial institutions from any suspension.

If you qualify, then the credit is a maximum of $5,000 per employee in 2020 and $7,000 per employee per quarter in 2021. The credit is only valid for the first three quarters of 2021.

The key takeaway is that the credit is real but only if you qualify. If you are interested in the ERC, discuss it with your trusted tax professional.

How Wipfli can help

At Wipfli, our tax team pairs extensive tax experience with specialized knowledge of financial institutions to give you the strategies you need. In addition to traditional tax services, we assist with treatment of loan and lease losses, mortgages service rights and more. Contact us to learn more about our proactive approach to tax planning.

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