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April 27, 2023 | General ERC Info

Common Misconceptions about Employee Retention Tax Credit

ERTC Myths As businesses try to navigate the economic impact of the COVID-19 pandemic, the Employee Retention Tax Credit (ERTC) has emerged as a critical tool for employers to help retain their employees. However, there are several misconceptions about the ERTC that can lead to confusion and misunderstandings. In this blog post, we will address […]

Common Misconceptions about Employee Retention Tax Credit

ERTC Myths

As businesses try to navigate the economic impact of the COVID-19 pandemic, the Employee Retention Tax Credit (ERTC) has emerged as a critical tool for employers to help retain their employees. However, there are several misconceptions about the ERTC that can lead to confusion and misunderstandings. In this blog post, we will address some of the common myths about the ERTC, clarify misconceptions, and highlight the importance of understanding the ERTC correctly.

Myth #1: Only Large Corporations Can Claim the ERTC

One of the most common misconceptions about the ERTC is that it is only available to large corporations. However, the ERTC is available to businesses of all sizes, including non-profits and tax-exempt organizations. The credit is available to eligible employers who have experienced a significant decline in gross receipts or have been partially or fully suspended due to a government order related to COVID-19.

Myth #2: You Cannot Claim the ERTC If You Received PPP Funding

Another common myth is that if a business received Paycheck Protection Program (PPP) funding, they cannot claim the ERTC. While businesses cannot claim the ERTC for the same wages that were used to calculate PPP loan forgiveness, they can still claim the ERTC for other wages that were not covered by PPP funding.

Myth #3: Claiming the ERTC Will Trigger an Audit

Some businesses may be hesitant to claim the ERTC out of fear that it will trigger an audit from the Internal Revenue Service (IRS). However, claiming the ERTC is not a red flag for an audit. The IRS has stated that it will not automatically trigger an audit for businesses that claim the ERTC, but it will review claims as part of its normal compliance activities.

 

ERTC Misconceptions

Now that we have addressed some of the common myths about the ERTC, let’s clarify some of the common misconceptions about how the ERTC works.

Misconception #1: The ERTC Is a Loan

The ERTC is not a loan. It is a refundable tax credit that eligible employers can claim on their quarterly employment tax returns or on an amended return. If the amount of the credit exceeds the employer’s employment tax liability, the excess credit is refunded to the employer.

Misconception #2: Employers Must Repay the ERTC

Employers do not have to repay the ERTC as long as they meet the eligibility requirements and use the credit for its intended purpose – to retain their employees during the COVID-19 pandemic.

 

Importance of Understanding the ERTC Correctly

It is crucial for businesses to understand the ERTC correctly to take advantage of the credit and retain their employees during the COVID-19 pandemic. Misconceptions and myths about the ERTC can lead businesses to overlook this critical tool and miss out on financial support that could help them stay afloat.

In conclusion, the ERTC is an essential provision for businesses that are struggling to retain their employees during the COVID-19 pandemic. By addressing common misconceptions and myths about the ERTC and understanding how it works, businesses can take advantage of this vital support and help support their employees and their businesses during these challenging times.