In my 20+ years as a CPA I've not seen a greater tax benefit to small businesses as the Employee Retention Credit. I've also not seen a tax benefit more neglected or misunderstood. The ERC Credit was enacted in March 2020 as one of the provisions that came from the $2 trillion stimulus bill called the CARES (Coronavirus Aid, Relief, and Economic Security) Act. The credit could be claimed against 50% of qualified wages between March 13 2020 to December 31, 2020 up to $10,000 per employee annually. The more popular stimulus provision from the CARES Act was the forgivable PPP loan. At the time a small business was eligible for one of the two but not both. This was actually a relief to many accountants who at the time had already seen their annual busy season turned upside down due to the global pandemic and who were quickly doing their best to digest the intricacies and muddiness of the new legislation with its daily updates and guidance from the Treasury, Department of Labor and the IRS. Interpreting this massive emergency legislation and educating clients was an insurmountable task during a disrupted tax season. Many accounting firms have gone above and beyond their expected duties and served their clients well.
With the passing of the Consolidated Appropriations Act in December of 2020 the ERC credit was expanded and extended through Q2 2021. Businesses could now receive BOTH the ERC credit and the forgivable PPP funds provided they met the qualifications and requirements and had taken both into consideration in calculating their eligible credit. The ERC credit was expanded to 70% of qualified wages with a new max of $7,000 per employee per quarter with an opportunity to receive the credit in advance. Many accountants, overwhelmed with meeting current demands while shut down, guiding clients through the nuanced and changing PPP loan forgiveness and working with banks to ensure forgiveness for their clients either did not realize the change had occurred or decided to put the ERC on the back burner until after tax season. The American Rescue Plan Act passed on March 10, 2021 extended the credit through the end of 2021. It also made a slight change in presenting an alternative quarter vs prior quarter comparison calculation to meet the 20% decline requirement. Many accountants captured the credit for their businesses and clients. MANY DID NOT.
As the mandate ended in March the eligible funds were no longer available to my company being that we are both an essential business and had not been hit as hard as other businesses. I did however have it on my calendar to revisit the ERC in September to ensure there weren't any updates to the law and that I had not missed something earlier in my analysis. I did find that due to certain circumstances our business may qualify for the credit in Q4. I started planning and preparing to capture the funds at the end of Q4. In my preparation I started asking around to see what other businesses were doing and what CPAs were recommending to their clients. To my surprise many CPAs still did not understand the credit, hadn't looked into it for their clients and were still busy filing returns that had been extended due to the disruption earlier in the year. Earlier this month (November) I attended my annual tax seminar to fulfill my required Continuing Professional Education. I was hoping ERC would be presented. I was not disappointed. It was the hot topic. I was encouraged that I had done the right thing for my business in claiming the ERC and that I was not crazy in my extensive due diligence in guaranteeing eligibility and determining qualified wages to ensure an accurate calculation of the credit. The last thing I wanted was to subject my business to audit risk or risk of fraudulent activity given the size of the credit. I was also interested in finding out what my peers' opinions were and if there was something I had missed in my analysis. Again to my surprise many CPAs still did not understand the credit and therefore had not gotten the money for their clients nor had even presented the credit to their clients. I heard things like "most of my clients received the PPP" or "What's the ERC?" or "hmmm...I should look into this for my clients." The final confirmation that I needed to do something was during a meeting with a CPA friend. I asked him "so what do you think about this ERC? Pretty big deal huh." His response was "I don't know much about it."
I'm determined to help other small businesses in the same way I've helped the small business for which I serve as CFO. Small businesses are what make our economy run and provide jobs. Small business owners work extremely hard and take huge risks. Some just to barely make ends meet, pay their bills and put food on their tables. These owners not only put in long hours for themselves but also for their employees and their families. Many businesses are currently struggling and are days or months away form going out of business. Many have already had to shut their doors. As things are starting to open up again and the economy is beginning to get back to normal, I want to help businesses get back on track. I want to help give those business owners the much needed funds to keep going. I want to reward those businesses that have worked extra hard to survive the pandemic and endured great losses. I want to help mitigate the losses for those businesses that had to close. If you are one of those many small businesses, I have good news. I'm here to help.
The Infrastructure Investment and Jobs Act was passed on November 6, 2021 and the ERC was terminated early for periods after September 30. I'm concerned that there may be further legislation that would end the ERC funding all together.
Sincerely,
Joel Eisleben, CPA
