Myths About The Employee Retention Credit

The employee retention tax credit (ERC) is overlooked by many organizations that might be eligible to take advantage of the credit, because it involves a complicated piece of legislation, and it can be difficult to discern whether an organization is eligible for the credit.

Many taxpayers think that, because they have not filed an ERC application, it is too late to do so.  Not true.  While the ERC applies for 2020 and 2021, there is a three-year window to file an amended return. Since this credit applies to quarterly activities and ends up being an amended 941, clients have three years from the date they filed that return to file an amended return with the ERC component included.

One of the more common misconceptions about the ERC is that organizations and small businesses that received funds under the Paycheck Protection Program aren’t eligible to receive the ERC.  It was true back when the legislation was drafted and implemented in 2020. But it was later expanded with a major rewrite of the code in late 2020 to allow businesses and organizations to receive both ERC and PPP.

Some businesses mistakenly believe that because they didn’t qualify for the PPP, they also don’t qualify for ERC. Not true.  These are two separate programs with their own set of requirements, and not qualifying for one does not disqualify you from another.

Businesses that had a decrease in revenue during the pandemic should also still investigate the ERC credit. While companies in all industries should look into this credit, those in the restaurant industry are particularly well-suited.

The IRS has estimated that 80% of small businesses and not-for-profits were eligible for this credit, and there probably was only 30 to 40% that actually claimed it.  Which indicates that there are is a large number of entities that just were not clear on whether or not they qualified.

For more information on the ERC, click on the links below for previously written Galleros Robinson articles:

The information presented here should not be construed as legal, tax, accounting, or valuation advice. No one should act on such information without appropriate professional advice and after a thorough examination of the particular situation.