The Covid shutdowns of 2020 and 2021 struck a major blow to our economy, and they severely impacted businesses across a wide range of industries. To help soften the blow, the government responded with several programs that were designed to help these businesses get back on their feet.
One of the programs that many organizations qualify for is the Employee Retention Tax Credit (ERTC). The ERTC is a refundable credit of up to $26,000 per W-2 employee that is designed to help businesses and nonprofits that had their operations significantly disrupted by a government-ordered shutdown.
There is a lot of confusion about the ERTC, and much of this is because the rules have changed multiple times since the program’s inception. Originally, organizations were given the choice between obtaining a forgivable Paycheck Protection Program (PPP) loan and claiming the Employee Retention Tax Credit. And since it was much simpler and easier to obtain a PPP loan, this is the option that most businesses opted for.
In March 2021, Congress passed the Consolidated Appropriations Act of 2021, which expanded the eligibility guidelines for the ERTC. Perhaps the most important rule change from this update is that organizations can now claim the ERTC retroactively (for the tax years 2020 and 2021) even if they received one or both rounds of PPP loans.
Table of Contents
- Eligibility for the ERTC
- Limited Window to Recover ERTC Funds
- Considering Selling Your Business? Speak with a Reputable Business Intermediary
Eligibility for the ERTC
Organizations can be eligible for the employee retention tax credit if they meet the following requirements:
- Began operations on or before February 15, 2020.
- Had at least five full-time W-2 employees in 2019.
- Had their operations significantly disrupted by a government-ordered Covid-related shutdown or experienced a quarter-over-quarter revenue decline during 2021 compared to the same quarter of 2019.
Many businesses, nonprofits, and churches that have five or more employees are likely to qualify for the employee retention tax credit, and the amount that an organization can receive depends on several complex factors. The number of employees they have is one of the most important determinants, as well as whether they took out one or both rounds of PPP loans.
The more W-2 employees an organization has, the larger its ERTC refund is going to be. But if they received PPP money, that would reduce the amount of the credit. Still, an organization with just 10 employees can expect to receive something close to or even more than $100,000. Some larger organizations with a few hundred or so employees have been able to get seven-figure refunds. There is no limit on the amount an organization can give back from the IRS.
Limited Window to Recover ERTC Funds
It is important to note that there is a limited amount of time that a business must claim its Employee Retention Tax Credit. The process involves filing amended tax returns for the years 2020 and 2021, and for each quarter that goes by, the amount that a business can recover goes down. The deadline to claim any credit at all from the program is currently August 2024.
The government has already changed the rules of the ERTC program a couple of times, so it would not be surprising if the rules were changed again. The program could also run out of funding, which happened early on with the PPP loans until additional funds were allocated to the program. For these reasons, it is in the best interests of businesses and nonprofit organizations who think they may qualify to submit a claim as soon as possible.
Considering Selling Your Business? Speak with a Reputable Business Intermediary
If you have been thinking about putting your business up for sale soon, now is a great time to have it on the market, and with the Employee Retention Tax Credit that is available to most businesses, you can put some extra money in your pocket even before you entertain offers from qualified buyers.
Take immediate action to find out if you qualify for the ERTC, then speak with an experienced CPA and accounting practice firm about selling your business. Business intermediaries, also known as business brokers, are skilled professionals who work closely with business owners to help them through the complexities of the sales process.
Business brokers leverage their marketing skills and network to reach as many qualified prospects as possible, making it far more likely that the seller will receive an attractive offer. They also help sellers handle delicate issues such as confidentiality, dealing with employees, and many others. This helps ensure a smooth and seamless process from start to finish.
