FAQs: Employee Retention Credit

ERC Frequently Asked Questions - The Fitness CPA

While the Employee Retention Credit (ERC) has been around since March 2020, recent changes in legislation have meant that it’s coming into the spotlight now more than ever.

Why? The new rules allow businesses to claim both PPP and ERC – and retroactively claim funds all the way back to Q1 2020. Pretty great, right?

As it stands now, chances are great that your fitness business is eligible to receive thousands of dollars back from the government right now.

However, with all of the discussion around ERC, there is bound to come misinformation and confusion. In this post, we hope to clear up any misconceptions you may have about ERC and help you calculate thousands of dollars for your fitness business.

If you haven’t read our blog post, What the Heck is the Employee Retention Credit?, we recommend starting there first.

If you have a general grasp of the topic, let’s dive in to a few more details now.

 

Is the Employee Retention Credit real?

Yes.  The Employee Retention Credit is a refundable tax credit from the IRS against certain payroll taxes in 2020 and 2021. It’s essentially more stimulus for your business to help you navigate the consequences of COVID-19. You can read about it on the IRS website here

Just between us, we really don’t think Congress knew what they were doing when they passed this law, and the degree to which it would help small businesses in need. 

Nonetheless, there is a lot of cash up for grabs for your gym or fitness business until the end of 2021, and we want to help you get it. 

 

Can I get both Employee Retention Credit and PPP?

Yes, you can. However, there are crossovers between the two programs in terms of the eligibility of wages. You’ll need an experienced accountant who is well-versed in Employee Retention Credit to navigate these complexities and maximize savings.  If the wages are applied incorrectly across the programs you may miss out on thousands or worse, owe money back to the IRS plus penalties and interest.

 

Does Employee Retention Credit have to be paid back?

No. The Employee Retention Credit is not a loan. If your tax credit exceeds your payroll taxes per quarter, you will receive a cash refund directly in your bank account. This cash does not ever have to be paid back, it’s yours!

 

Who can claim Employee Retention Credit?

If you’re a fitness business with at least one employee and less than 500 employees and you opened prior to February 2020, chances are that you probably qualify. To qualify for the Employee Retention Credit, your business must have either: 

  1. Been shutdown by city, county or state state regulations (hours reduced, location closed, partial capacity).
    OR
  2. Have had more than 50% decline in revenue in 2020 when compared to 2019 OR more than 20% decline in revenue per quarter in 2021

You can use our quick quiz to see if you qualify. 

Will Employee Retention Credit be extended?

As of today’s date, May 2021, the Employee Retention Credit can be claimed for all quarters in 2020 and 2021 until the end of the year – December 31, 2021. 

 

Does Employee Retention Credit apply to owners?

If you pay yourself as an employee of your business, then yes – it applies to you as well.

 

How is Employee Retention Credit paid?

After your employee retention tax credit is calculated and submitted, a Certified Public Accountant can claim the credit immediately by amending your payroll tax returns with the IRS. If your credits exceed payroll taxes (they will!), you can request a direct refund from the IRS. This money will be mailed to you in the form of a check. 

 

How to apply for the Employee Retention Credit

While the money you get back from the Employee Retention Credit is pretty straight forward, the application process to get it is quite complex. We recommend using an experienced accountant (who has done a lot of ERC applications!) to apply on your behalf. We won’t get into too much detail on the nitty gritty of calculations, but there are many factors to consider, including revenue per quarter, government shutdown regulations, eligible wages, PPP funding and more. After the calculations are done, you can claim your credit immediately by amending your payroll tax returns. After this, you will receive a refund in the form of a check!

 

How to claim Employee Retention Credit retroactively

Until December 31, 2021, you can claim the Employee Retention Credit retroactively by amending prior period payroll tax return. There is quite a bit of work involved, including sending forms through the mail to the IRS, but an accountant with employee retention credit experience can take care of all for you. 

 

What is the maximum amount of the credit I can claim?

For 2020, the maximum credit you qualify for is $5,000 per employee, per year. For 2021, the maximum credit is $28,000 per year, per employee. At The Fitness CPA, we will calculate your exact credit for free. No obligation to hire us afterwards! Get your free calculation here.

 

What are eligible wages?

It depends! If you qualify for the Employee Retention Credit due to having your business shutdown, only the wages paid during the shutdown are qualified (Makes sense!). However, if you qualify due to reduced revenue, then all wages paid during the reduced quarter of income are eligible.

 

How long until my Employee Retention Credit refund arrives?

After your amended payroll reports have been filed the IRS is estimating anywhere from 6 weeks to 6 months until the refund check arrives.  We would say plan on as long as 9 months just to be safe.  We are the only accounting firm that guarantees the money will arrive, or double your money back.

 

We’ve already filed or haven’t filed our taxes for 2020 yet – how will this affect us?

If you haven’t filed yet, do not file.  The credit will need to be reported on your 2020 business tax return and will flow through to your individual tax return on your K1 (presuming you’re a flow through entity like a partnership or s-corporation).

If you’ve filed your return, we will give you all the necessary information so your tax preparer can amend your tax return for you.  They already have the data in their system and with our written guidance your tax preparer should be able to amend the filing easily.

 

Will filing for the Employee Retention Credit increase our chances of being audited?

With so much money at stake we fully expect the government to be spot checking these calculations.  Sometimes audits happen two or even three years after-the-fact so it’s best to hire a Certified Public Accountant that’s licensed, insured, and who will be around to back up your credit calculations after-the-fact should you be selected to prove your credit amount. To avoid headaches and heartaches down the road – businesses need to have counsel to properly and fully document and paper how the business qualifies for the ERC. 

Here at The Fitness CPA we certify that your calculations will withstand any audit – money back guaranteed.   And let’s be clear: the tens of thousands of dollars at stake here are legally available to businesses like yours and are absolutely worth the small chance the IRS will want you to show support and backup for the credit claimed.

 

If my business did better or the same as in years past, can I still obtain the credit?

Yes.  If you don’t meet the decline in revenues test, but were partially or completely shut down, forced to reduce hours or capacity by a city, county or state mandate then you still qualify for thousands in credits.

 

I never fully shutdown from a government order, am I still eligible for the employee retention credit?

Yes.  A full shutdown is not required to qualify.  Being forced to operate at a reduced capacity or with social distancing requirements may qualify your gym or fitness studio. We have experience in both the employee retention credit and in how fitness businesses operate ask our clients the right questions to ensure we get as much credit as legally possible.

 A second way to qualify is through reduction in revenues which by itself will qualify many businesses.

 

What if I have another question not answered here?

Fill out our Employee Retention Credit inquiry form here.  You’ll get an immediate email from The Fitness CPA.  Reply to that email with your question and we will answer it personally.

 

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