Top 5 Questions To Ask a CPA About ERC
Thought Leadership by KBKG
How does the employee retention credit work? This is a refundable tax credit for eligible businesses that continued to pay their employees in spite of being shut down or while they experienced a significant decline in gross sales during the COVID-19 pandemic. The credit goes against the share of employment taxes the employer would have paid during that period.
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Unfortunately, businesses are falling victim to schemes and solicitations for employee retention credit 2021 tax savings. To combat such misinformation, you should seek help from certified public accountants. However, if you don’t know the truth behind credit eligibility or your refund status, you could become another statistic conned into working with an ERC mill. Here’s what you should be asking when you meet with a CPA.
1. How Long Does It Take To Get an ERC Refund?
Although the waiting period for a refund differs for each business, the refund process usually takes between six to nine months once you file. There is a backlog of claims, which is delaying the previous processing average of four to six weeks.
False claims about instant refunds, more quickly projected refunds or significantly delayed refunds could indicate you’re working with a disreputable provider, as do excessive processing fees and charges. KBKG is a name you can trust when working with an ERC (or ERTC) claim and will give you as accurate an estimate as possible.
2. Is It Too Late To Apply for ERC Credit?
There are qualifications to the credit set by the IRS, such as the eligibility period for paying employees from March 13, 2020 to December 31, 2021. However, thanks to the American Rescue Plan Act, it’s not too late to apply for the employee retention credit. The credit is retroactive and extends the filing period for employers.
The application deadline for eligible businesses that filed a 2020 return is April 15, 2024. Eligible businesses have until April 15, 2025 to file a claim for 2021 tax returns. To answer the question “can you still claim employee retention credit for 2020?”, yes, the filing deadline hasn’t passed.
3. Do 1099 Employees Qualify for ERC?
The ERC tax credit isn’t for independent contractors who receive a 1099 from a company. Qualified wage calculations shouldn’t include any compensation paid to these individuals. However, an independent contractor who files using a 1099 could meet the eligibility criteria and file for a similar credit offered by the federal government. This is filed using a different form and has its own criteria for eligibility.
4. Are Sole Proprietors Eligible for ERC?
A sole proprietorship or LLC may be eligible to claim the employee retention tax credit, but not personally. Self-employed workers, those who are working either under an LLC or as a sole proprietor, are not considered employees and don’t receive official wages. Instead, these individuals draw their funds from business profits. Since this isn’t a paycheck, FICA and taxes aren’t withheld.
A majority owner of a business isn’t eligible to claim the employee retention credit. However, other employees working within the business who received wages could be eligible. Because of the criteria that need to be met, it’s important to work with a team that knows the specifics of the ERC process. KBKG is a trusted partner for CPAs and those looking for the truth about the retention credit.
5. Is the ERC Tax Credit Taxable Income?
While the refund itself is not taxable, there is a tax effect because the amount of the credit needs to be deducted from wages in order to calculate taxable income. This essentially means you are adding back the amount of the credit in the year earned which is effectively making it taxable income.
Know the Options for an ERC Claim
When you have questions about the ERC and the refund status, accurate information is important. You can trust the team at KBKG to provide you with clear guidance on filing for the employee retention credit and the most up-to-date information available for filing. Contact us to find out more about our services.
KBKG is providing the following services to assist with ERC:
- Determine if the employer qualifies, and if so, for which quarters,
- Determine which employee wages qualify
- Calculate credits, including analysis of PPP interplay, and
- Reconcile actual credits with advance credits requested
- Prepare reconciled data for Form 941-X
- Prepare documentation supporting a business’ qualifications
Curious to know more about the ERC credit? Contact us today.