- what the employee retention credit is
- why fitness businesses most certainly qualify, and
- why your CPA hasn’t mentioned it to you yet.
If you haven’t read those blogs, we strongly recommend going back and doing so. They should answer a lot of your initial questions about ERC, and help you kickstart the process of getting thousands of dollars back for your gym.
In today’s post, we’re going to dive a bit deeper.
We’re going to tell you three tips about the Employee Retention Credit that you would pay a CPA to tell you.
And to be honest, not just any CPA.
But three things you would learn if you hired The Fitness CPA to help you with the Employee Retention Credit.
As we’ve spoken about before, many CPAs aren’t familiar with ERC due to a number of factors, from fatigue to changing regulations.
Here at The Fitness CPA, we’ve invested hundreds of hours educating ourselves about the Employee Retention Credit in order to maximize the savings for all of our clients.From those learnings, we’re sharing our Employee Retention Credit secrets and what you can do to maximize savings for your gym or fitness business. Let’s dive in.
ERC Tip #1: Apply PPP Funds to Non-ERC Wages
As you may or may not know, the wages you pay using Paycheck Protection Program (PPP) funds are not eligible for the Employee Retention Credit.
It makes sense – the government isn’t going to give you a tax credit on funds they’ve given you to use in the first place.
In this case, we recommend applying PPP funds to the quarters you don’t qualify for the Employee Retention Credit.
Our three most common scenarios are:
- · If your business is eligible for the Employee Retention Credit in Q1 2021 – but not Q2 – then apply the PPP 2.0 funds to wages in Q2 2021 rather than Q1 2021.
- · If your business employs family members who are ineligible for ERC, then use those family members’ wages to meet the PPP wage requirements. Using your family to meet the PPP requirements means that other wages are left to qualify for ERC, leaving you with a larger credit.
- · ERC wages per employee are capped at a maximum of $10,000 for all of 2020 and $10,000 per quarter in 2021. Did you pay anyone more than this? Don’t let those wages go to waste! Use those wages to meet your PPP requirements in eligible PPP periods.
Pitfall warning: don’t get too excited and apply your PPP wages to wages that aren’t eligible for PPP.
The relationship between PPP and ERC is one of the most complex factors to navigate when it comes to maximizing the amount you get back for the Employee Retention Credit.
We strongly recommend working with a CPA who has a lot of experience with the Employee Retention Credit in order to avoid inaccurately applying the PPP funds (see: audit risk!) and to ensure you are getting the absolute maximum amount by applying the funds strategically.
ERC Tip #2: Remember Your PPP requirements and how to abide by them.
In a bout of excitement, it’s tempting to use the tactics above to apply all non-ERC wages to meet PPP requirements. However, not all wages can be used to meet your PPP spending requirements.
Make note of your PPP forgiveness period and only use wages from this period. Wages must have been paid or incurred during your PPP forgiveness period. We’re seeing a lot of clients have ERC significantly reduced because they elected a less than 24-week forgiveness period on their PPP forgiveness application.
If you find you’re cutting into your ERC wages, you can look into wages that were paid immediately after the PPP forgiveness period but worked during the PPP forgiveness period. We recently helped a client obtain more than $4,000 in additional ERC funds by using this tactic.
There is a cap on the amount of per employee wages that can be utilized towards PPP. For non-owner employees, the maximum amount of wages that can be used for PPP forgiveness is $46,154 for a 24-week covered period ($100,000 x 24/52). Benefits such as health insurance and retirement can be added to this amount.
Perhaps the most important one: do not use the same wages for both PPP and ERC. They can only be used for one category or the other. The good news is that taxpayers can allocate each dollar of wages however they’d like. So if an employee is paid $100, then $50 can be allocated to ERC and $50 to PPP, or in any ratio that is advantageous to the taxpayer.
It’s important to ensure you don’t jeopardize your PPP forgiveness, as paying back these funds would be rather costly. We’ve seen accountants on YouTube selling seminars on ERC, but we believe the pitfalls of doing ERC yourself are numerous and each one is potentially very costly.
ERC Tip #3: Refer back to your original PPP forgiveness application
If we go back to the rules and regulations around PPP, you’ll remember that at least 60% of your PPP funds need to be used on employee wages, in order to NOT have to pay back your loan.
This number is down from 75%, as they originally legislated.
The best case is that your business marked 60% of your PPP money for eligible payroll costs. There are ‘tricks’ such as being sure to include employer state payroll taxes (like state unemployment), retirement, and healthcare costs before dipping into ERC wages. These are the ways in which a good CPA will help you maximize your employee retention credit.
In short, use the smallest amount of payroll costs for PPP. Doing so will ensure you meet your PPP requirements and maximize the amount of Employee Retention Credit you can receive back.
If this sounds confusing, it’s because it is. A lot of work goes into the calculations for the Employee Retention Credit in tandem with the Paycheck Protection Program (PPP).
If you never took PPP funds, then your business calculations will be slightly less complicated.
But if you did (which I’m hoping is most of you!), you will almost certainly need to use an experienced CPA to get the most out of the Employee Retention Credit.
Ok. But Should I Pay a CPA to Calculate the Employee Retention Credit?
Our answer? A resounding Yes!!
In fact, you must hire a CPA experienced in payroll, tax law, and hopefully your industry to calculate the Employee Retention Credit for you, especially if you took part in the Paycheck Protection Program during COVID-19.
There are just too many complexities involved for a non-Certified Public Accountant to know and consider.
In fact, many Certified Public Accountants don’t know the ins and outs of Employee Retention Credit either! We wrote more on that over here.
Here at The Fitness CPA, we’ve made it really simple for you.
We’ll do the complex calculations for your Employee Retention Credit amount – for FREE! – if you’re a gym or fitness business.
That’s right! You don’t need to be a client of ours in order to receive your free calculation.
Simply answer a few questions, and give us a few documents regarding payroll reports and PPP, and we’ll tell you the exact amount you can receive back from the IRS.
What you do with the information afterward is completely up to you!
How do I start?!
First things first, you’ll probably want to find out if you qualify. Use our 60-second quiz to find out if your gym qualifies for the ERC.
Otherwise, you can ask our team a question by filling out the form on our Get In Touch page.
Until next time!
- What is a Deemed Election and How Does it Affect Your Employee Retention Credit Refund? - August 15, 2023
- Paying Workers: Employees vs. Contractors for Gyms & Fitness Businesses? - March 28, 2023
- 3 Employee Retention Credit Tips You’d Pay a CPA For - March 6, 2023