Many Franchisees May File for up to $26,000 per Worker, No Strings Attached
The Employee Retention Credit is welcome relief for qualified businesses that continued paying their workers during the darkest days of the pandemic. Franchisees and other business owners still have time to file paperwork to receive their federal ERC money. Here are 10 things to know about the ERC (also known as the Employee Retention Tax Credit, or ERTC – they’re the same thing):
The ABC’s of ERC
1. Why Did Congress Create the ERC?
The ERC, a refundable tax credit, was established as an incentive for businesses to keep people employed even when business activities were curtailed because of the pandemic and mandated shutdowns.
2. What are the Eligibility Requirements for Businesses?
A franchisee or other business owner must be able to prove he or she paid employees wages while impacted by government shutdown orders during the Covid-19 pandemic or suffered major decreases in gross receipts between March 13, 2020, and Dec. 31, 2021. One caveat: Only businesses that launched during the pandemic are eligible for the ERC in the fourth quarter of 2021.
Some businesses are eligible for the ERC even if their revenue didn’t decline, says Sunshine Chapman, founder and president of ERC Provider, a service that assists franchises and other businesses with filing for ERC benefits. Government entities and self-employed people are not eligible to receive funds. Nonprofit organizations and employees of self-employed people are eligible, however.
3. How Much Money is Available Per Employee to Qualifying Businesses?
“$26,000 per employee,” answers Chapman. “If a business has 40 employees, the total ERC could be more than $1 million.”
4. My Franchise Received Money Under the Federal Paycheck Protection Program. So, is My Business Still Eligible for the ERC?
Although PPP does not mean an automatic disqualification, a business can’t receive ERC money for the same wages that were covered by benefits the federal government paid out under the PPP.
5. What are the Steps to Filing?
You start by compiling all of your 941 returns, PPP loan documents (if applicable), payroll data, and profit-and-loss (P&L) statements. Next you need to determine the precise value of the ERC your business is entitled to for all qualified wages (health insurance payouts also count). Then you need to amend your tax return by preparing and filing the 941-X amended payroll returns. Finally, assuming your Internal Revenue Service paperwork was completed and filed correctly, you will receive money from the IRS.
6. How Long Does it Take to Receive My ERC from the IRS?
Chapman says that her company, ERC Provider, needs only “about two weeks from an employer’s initial call to filing for the tax credit with the IRS. Then it typically takes four to six months to receive the funds from the IRS. First clients receive six letters, one for each quarter, from the IRS saying that they have overpaid on their payroll taxes. Next, they receive six checks, one for each quarter filed.”
7. What is the Deadline for Applying?
The deadline to file an amended payroll tax return for the 2020 tax year is April 15, 2024. For the 2021 tax year, the deadline is April 15, 2025.
8. Do I Need to Repay this Money?
No. This is a credit on taxes that the business paid into the federal government. Unlike the PPP, it is not a loan and does not need to be repaid.
9. How May ERC Money be Spent?
The money may be used in any way needed by the business. It also may be used to offset future tax payments. It doesn’t have to be spent under any time restraint. Chapman says franchisees might use their ERC money, for example, “to buy a new franchise location, renovate a building, purchase new inventory and/or hire new employees.”
10. What are Some of the Challenges to Applying for ERC?
There already have been tweaks to ERC regulations, and more could occur; business owners must stay current on regulations in order to comply. Even minor errors can result in delays or disapproval by the IRS.
Chapman points out that “the rules are very complex, hundreds of pages long, with several factors that interact to affect eligibility. For example, PPP wages and the wages of owners and their relatives have to be stripped out before calculating the credit. Government grants can also affect the total amounts received.”
ERC Credit: The Takeaway for Franchise Business Owners
If franchisees aren’t at the very least exploring the possibility of an ERC for their businesses, they may be leaving money on the table. ERC Provider, which receives a percentage of the tax credit in return for filing with the IRS on behalf of the business owner, stays abreast of regulatory changes and helps business owners cut through red tape. For more information about ERC Provider and its fees, visit https://ercprovider.com/.