By: Patti Callaway
The Employee Retention Tax Credit (ERTC) has been a lifeline for organizations struggling due to the COVID-19 pandemic. However, misconceptions and falsehoods surrounding the ERTC have led to confusion among leaders. In this article, we’ll debunk two common misconceptions:
- One cannot claim ERTC if they received the Paycheck Protection Program (PPP) funds
- A decline in gross receipts is a mandatory requirement for eligibility
Misconception 1: “I can’t get ERTC because I received PPP funds.”
One common misconception is if a business received funds through the PPP, they are ineligible for the ERTC. This belief stems from confusion regarding the interaction between these two relief programs. The truth, however, is organizations can potentially qualify for both the ERC and PPP, but there are certain restrictions on double-dipping.
The key differentiator to understand is organizations cannot use the same wages to claim both the ERC and PPP forgiveness. This means, if wages were used for PPP loan forgiveness, those wages cannot be included in the ERC calculation. However, there may be other eligible wages or qualified health plan expenses that were not considered for PPP forgiveness, and these can still be used to claim the ERC. Organizations need to carefully analyze their wage and expense allocations to determine their benefits from both programs.
Misconception 2: “My gross receipts didn’t decline.”
Another common misunderstanding is that a decline in gross receipts is a prerequisite for claiming the ERC. While a decline in gross receipts is a common qualification criteria, it is not the only one. The comparison test is by quarter. So, it is possible to have a gross receipts increase in the year but still qualify for a quarter or more within the year. Likewise, it also is possible to have a nominal effect to your business due to a government shutdown or government restrictions that also could qualify your business.
Moreover, for organizations that were not in operation in 2019, a decline in gross receipts test can be applied by comparing the current quarter’s gross receipts with an appropriate reference period. This flexibility helps make sure organizations of different sizes and operational durations can still be eligible for the ERTC if they experienced a significant decline in revenue during the pandemic.
Did you have these same misconceptions? Now that we’ve debunked them, could your organization claim the ERTC? KPM can help you review and analyze your wage and expense allocations to determine if your organization can claim the ERTC. Contact us today for a complimentary 30-minute consultation.