If you’ve read any of the provisions of the American Rescue Plan Act of 2021, you’ll see where a “recovery startup business” was made eligible to claim the Employee Retention Credit (ERC). Unfortunately, we’ve seen a fair amount of confusion over what constitutes a startup business relative to the ERC, and many misunderstandings by those businesses that qualify.
Before we look at the top 10 misunderstandings of the ERC by startups, let’s first clarify what a recovery startup business is.
What is a recovery startup business?
According to the IRS, a recovery startup business is a company that:
- Began carrying on any trade or business after February 15, 2020
- Had average annual receipts under $1 million for the 3-taxable-year period ending with the taxable year that precedes the calendar quarter for which the credit is determined
- Does not meet the other eligibility criteria
Still not sure if you qualify as a startup business? Talk with one of our ERC experts at BottomLine Concepts, and we’ll determine that for you.
Now, on to the 10 most common misunderstandings startups have concerning the ERC.
1. How much ERC you can get.
Your startup can save up to $7,000 per qualifying employee per quarter, and your total savings is capped at $50,000 per quarter.
2. How PPP loans affect ERC.
You can apply for both the PPP and ERC (restrictions apply).
3. You need a 50% reduction in receipts to qualify.
The qualifying percentages vary from 20% to 50%, depending on the quarter.
4. You must have had a full shutdown to qualify.
Your business may be eligible if it partially shut down due to a partial suspension order from your federal, state, or local government.
5. Essential businesses can’t qualify.
Many essential businesses were negatively impacted by the pandemic, and they can qualify for the ERC under certain circumstances.
6. Claiming the ERC will cause an audit.
Receiving a tax credit like the ERC does not impact whether the IRS selects you for an audit.
7. Sales recovery disqualifies you.
Even if your sales recovered for the first quarter of 2021, you can still qualify for the ERC.
8. Your tax preparer can claim the ERC on your annual tax return.
You can only take the ERC by filing IRS Form 941 or 941X. It’s not part of your annual tax return.
9. You’re disqualified because you have over 500 employees.
It’s not how many employees you have; it’s how many qualifying full-time employees you have.
10. A business you acquired can’t qualify for the ERC.
If you bought the business after February 15, 2020, you are considered a new employer and may qualify as a startup. The same holds true if you were an existing business that opened a new store.
Are You a Recovery Startup Business?
If you’re a recovery startup business, you need to talk with an ERC expert at BottomLine Concepts. We’ve helped thousands of companies, including startups, receive billions of dollars in credits because we understand the ERC and cost-savings inside-out.
BottomLine Concepts is the leading performance-based cost savings firm in North America. When you work with us, you’ll have no risk, no out-of-pocket costs, and no obligation to move forward after you talk with us.
Contact us and schedule your free 15-minute consultation today. We’ll help you determine your ERC eligibility, give you a blueprint to collect what you’re owed, and make sure you get every dollar you’re entitled to.
If you’re not a startup business and are unsure if you qualify for the ERC, we’ll be happy to help you, too. Don’t join the 90% of companies that haven’t taken advantage of the ERC. Put us to work for you today.