It Figures: The CRI Podcast
It Figures: The CRI Podcast
S2:E16 - Just You, Me, & the ERC.
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If you started a new business and began operations after February 15, 2020, you might be eligible for up to $100,000 in tax credits over the third and fourth quarters of 2021. In this episode of It Figures, CRI Partner Mike Scott and Paywerx Senior Tax Manager Randy Matthews consider the newly updated eligibility requirements for the Employee Retention Credit (ERC).


Intro:

From Carr, Riggs & Ingram, this is It Figures: The CRI Podcast, an accounting, advisory and industry-focused podcast for business and organization leaders, entrepreneurs and anyone who is looking to go beyond the status quo.

Michael Scott:

Hello. This is Michael Scott from Carr, Riggs & Ingram. And today’s episode, It Figures Podcast, I’m the partner-in-charge of the Panama City, Florida offices. And today we’re going to be talking about Employee Retention Credits but specifically the ERC relative to recovery startup businesses. With me today is Randy Matthews and he’ll introduce himself to you.

Randy Matthews:

Hello, everyone. My name is Randy Matthews as Mike said. I am a senior payroll tax manager for Paywerx. Paywerx is a portfolio partner company within CRI and we do payroll processing, payroll tax. And in my role as senior tax manager as you can imagine, I’ve become infinitely aware and worked within the complexities of the CARES Act and the various legislations that we’ve seen through the COVID crisis. So looking forward today to getting into some of the intricacies of this program which is really a very exciting program for new startup businesses.

Michael Scott:

Thank you, Randy. I just want to begin by saying this is just an amazing benefit and Congress passed this specific piece of it on March 11th of 2021. The incredible thing of this is that any new business startup, any new business startup at all that began after February 15th, 2020 or later… And think about that, that’s February 15th, 2020. We’re sitting here in late 2021 currently in the third quarter of the year and so any business that has started up roughly about 570 days ago is eligible for this credit. The credit amount is up to $7,000 per employee and $50,000 per business. So, think about that. Get your minds wrapped around that just a minute. A $7,000 credit per quarter, per individual up to a maximum of $50,000 per company.

Now this credit is only allowed in the third and fourth quarter wages that are paid by a new business in 2021. Even though the business may have started in 2020, your third and fourth quarter wages qualify for the credit. The great thing about this is that there are no other criteria that you have to meet to qualify other than being a new business in this arrangement. As long as you are a new business and you pay wages, you do qualify for the Employee Retention Credit.

This is huge. This is a once-in-a-lifetime thing in our tax code. And we just want to shout this from the rooftops and tell anybody that this is available and it’s available right now. And it ends actually in December of 2021. Randy’s going to talk a little bit I think about defining a new business startup, if you don’t mind, because February 15th, even though it’s an important day of 2020, there’re some caveats in there that might allow somebody an opportunity that they may not realize.

Randy Matthews:

Right. Thanks, Mike. Actually, the IRS came out with some guidance back in late July that basically helped define what exactly is the start date of that entity. And basically, what they’ve said is that, “Don’t get hung up on your date of incorporation. What you really need to look at is when did you begin to function as a going concern and perform those activities that your business was organized for?”

So, if let’s say you incorporated November of 2019, and you did construction and development and things like that. And even though you had employees all along but you didn’t really start functioning as the going concern or for what you started the business for until after February 15th, you still qualify for this credit. It’s not necessarily date of incorporation or anything else, it’s defined as when did you start to function as the going concern that you intended to be all along.

Michael Scott:

Thank you, Randy. Tell me if you don’t mind, how does the startup ERC compare with the traditional ERC that many businesses have already been a little bit familiar with?

Randy Matthews:

Well, from our standpoint and from the standpoint of CRI, the calculation method is really exactly the same. It’s still $7,000 per employee, per quarter based on qualified wages, based on the limitations of $10,000, the health care costs, all of that is exactly the same. Really from a calculation standpoint, the only difference is the $50,000 limit per the entity. Most of the differences in the startup ERC is on the eligibility side. There’s none of the, “Were your revenues down? Were you a shutdown?” In all honesty, your business could have started and be doing very, very well and just the fact that you started after that date, you qualify. So really everything is really on the qualification side.

Michael Scott:

Yeah, and it’s incredible. I still can’t get over the fact that a business could have started 600 days ago… Those of you listening, if you have friends or family or business acquaintances, you probably know somebody that has a startup business that has started in the last 600 days. And if they pay wages, they qualify for this. It’s just incredible. Randy, how do our clients apply for this credit?

Randy Matthews:

Well, there’s really two methods. One that we don’t recommend, the other that we do. The one we don’t recommend is you can file what’s known as a Form 7200. And supposedly, when that was set up by the IRS, it was a way for you to get the money quickly. However, that’s a paper return. You send it to the IRS. The IRS is currently about 16 weeks delinquent in processing paper returns. So it’s going to be four months really before that request even gets looked at. It’s really not what it was designed to be.

The way we recommend is that you file it electronically with your quarterly 941 which is a form that you’re filing already as a business paying payroll. It’s included in that return and if you followed electronically what we’ve been seeing is clients getting the refund checks within… We told people 30 to 45 days is what to expect but in some instances we’ve seen it come back much, much quicker than that.

Michael Scott:

So, you would… I mean, there’s a difference obviously in filing the 941 electronically versus, “Well, I just don’t have time to do that right now and I’ll amend it later.” Isn’t there a big difference in timing of when they actually get the money, if that were to happen?

Randy Matthews:

Right. The same logic applies with filing a 941-X as filing the Form 7200. As I said, the IRS is extremely backlogged now in processing any paper return. So what you’re going to see is it can be six months before you get that money back. I have some instances of some clients that we filed 941-Xs for early in 2021, and here we are in September and we’re still waiting for that money. We checked with the IRS, they’d show that it is received, but it’s waiting on someone to physically look at it. So we really recommend that if there’s any way possible, don’t sit on this. Go ahead and do it with your regular 941, and get it filed as quickly as possible. And get the money when you need it, not when they have time to look at it.

Michael Scott:

Randy, when we file those 941s or when Paywerx files those, what mechanisms do you have it internally that allows you to say, “Hey, let’s measure this and don’t be in a hurry to file a 941.” Don’t you work really well with Carr, Riggs & Ingram on holding that up or collaborating with us in making that happen appropriately?

Randy Matthews:

Right. What we really need to know… I mean, just to let everybody look behind the curtain here, when we file 941s electronically, it’s not something that it waits till the very last day or the due date and you push a button and they all go. It’s something that’s happened ratably throughout the month after the quarter ends up until the due date. So really what we need to do as quickly as possible is identify anybody that might be eligible for these startup credits and put them in a suspended pattern and just wait for the information to come in.

Or whether CRI performs that calculation, or you request that Paywerx does it, once we get the calculation completed, we feed that into the payroll software. It calculates the credits. We confirm it and submit that electronically to the IRS as quickly as we can. Because even once we get it calculated, we’re as anxious as you are for you to get your money. So we’re not going to sit on it at that point. We’re going to prioritize that return, get it to the front of the line, get it electronically filed. Submit it and get the money back to us as quickly as we can.

Michael Scott:

Yeah. I think that’s huge to make sure that we get that together and coordinate that because if they have to amend, it’s just a nightmare. And what I found is, like you said, the IRS is very slow. But then the client sometimes thinks that we’ve done something wrong and we actually haven’t. It’s just that the IRS is currently slow and that could take a long time, so we try to avoid that at every cost. Randy, who should be performing these calculations? Is that something the client does and gives to us, or how does that work?

Randy Matthews:

Well, I mean, it can be a fairly complicated depending on your situation calculation. Obviously, there are factors. Example, if you had a PPP loan that you’re trying to seek forgiveness for. Obviously, a PPP loan forgiveness that is greater than, and it trumps ERC because that’s a 100% credit as opposed to a 70% credit. And it’s non-taxable versus taxable. So, it can get fairly complicated from that standpoint. I think that’s something that you want to engage, whether it’s CRI or Paywerx to perform those calculations because done correctly…

We’ve done hundreds of these, so we know how to maximize the credit and still protect the PPP forgiveness. So I would encourage you to engage, either Paywerx or CRI to perform this calculation for you. We have all the data. CRI and Paywerx being sister companies, obviously, we have the ability for that data to flow as it needs to and get the calculations done very, very quickly.

Michael Scott:

Thank you. My question is, when should these clients start working on this? Should we just wait till October 1st, or October 5th, or 10th comes along? Or how should they as a client be preparing to do this?

Randy Matthews:

Well, going back to your earlier question about the differences between the traditional ERC and the startup ERC. This one is different in that it does not have the revenue qualifiers or things of that nature. I mean, there’s nothing to wait on at this point, either you qualify or you don’t. And if you do think you might qualify, let’s go ahead and identify that now. Sooner is better. That way, first off we create a list and when October 1st rolls around and we’re done with payrolls for the third quarter, we can get the calculations done very, very quickly. And get your 941 file and get your money back to you. But there’s really no reason to wait. If you think there’s a chance you qualify, ask the question. And I also would encourage you, it costs nothing to ask. So even if you think there’s a possibility that you might qualify, ask the question.

Michael Scott:

I think that’s a huge important factor for all clients because sometimes, I mean, I have had clients think that they don’t qualify and we look at it very closely and they do. And they’re just shocked and the money can make a difference. And the cash flow of the business is by a lot. And they have room to breathe in their operational protocol and it just helps tremendously. Randy, is there anything else you want to say about this before we recap and close for the day? This has been extremely insightful. Do you have any other words you’d like to add?

Randy Matthews:

Well, I would just encourage our listeners. What we’ve seen throughout this entire COVID outbreak and all the legislation that came through is the government and the legislatures, they’ve found a new toy, if you will. Before, your 941s, your payroll tax deposits, those were sacred. Those never got modified or messed with in any way. But now, Pandora’s box has been opened. And I think this is really just the tip of the iceberg. And I think more and more, it’s going to be important that all businesses are working… There are a lot of, I’ll call them payroll service providers out there.

But I think really what you want to migrate toward is a payroll service partner, because you need someone that is aware of these programs. Because the IRS is not going to call you and say, “Hey, you may qualify for the CRC.” They’re going to expect you to seek that credit on your own. And it’s going to be more and more important that you have a good partner. Similar to your comments earlier, I’ve had clients that I went to, that I knew enough about their business, to know now that they might qualify. The owners of those business had no clue about the credit. And some cases they were about to miss out on millions of dollars. It’s that big and it’s that important that you really have a good provider and a good partnership with that provider.

Michael Scott:

I agree completely. Thank you, Randy, very much. Again, Randy Matthews from Paywerx, a portfolio company of Carr, Riggs & Ingram. I’m Michael Scott from Carr, Riggs & Ingram, and we work together on your behalf to serve your needs and those of your friends that you might want to send our way. We thank you very much for listening to It Figures Podcast today. We invite you to visit cricpa.com to listen to other podcasts that we have. We thank you very much, and for sure, make sure you tell somebody about this.

If you have a friend or a business that their CPA has not told them about it, please have them call us. Either Paywerx or Carr, Riggs & Ingram and we’ll partner to help those clients and friends to get the most out of this benefit that is astoundingly incredible for all recovery startup businesses in 2021 year, but they began their business in 2020. Thank you very much. We appreciate it and look forward to working with you as you see the need for us.

Outro:

If you want more CRI insights or interested in learning about our firm, please visit our website @cricpa.com. Thanks for listening to this episode of It Figures: The CRI Podcast. You can subscribe to It Figures on iTunes, Spotify, or wherever you prefer to listen to your podcasts. If you liked what you heard today, please leave us a review.