ERC by the Numbers

In this week's episode, Travis discusses and breaks down the ERC by providing you with important numbers to remember!

Transcript

Hey everybody, Travis Watkins, Tax Attorney doing our weekly discussion of the Employee Retention Tax Credit. If you've got any questions that we can answer here, please put them over here in the comments section. I'd love to touch base with you and get you some help on the Employee Retention Credit. It's a great credit. It's a little bit complicated and that's why we're here weekly trying to answer some of those questions for you and make it less complicated because it does have a fuse on it. It's not going to be around forever. The technical time periods for it are already passed, but that doesn't mean that the program is over. It's really just getting started as far as what we're seeing in the way of volume of business owners who are getting educated about it and starting to benefit from the Employee Retention Credit.

Today's session, I already had some things planned out for you, but of course we'll just switch gears at any moment if you have a question on this, but I've laid out some of this. I call it “ERC by the Numbers”, and I'll give you some numbers and then I'll explain what that number means in relation to the credit itself and hopefully that'll help you understand the program a little better. So here's the first one. 447,000 is the first number. That is the number of unprocessed 941X amended quarterly payroll return reports that were in the pipeline as of February 1st, 2022. Today is Halloween, October 31st, 2022. So, this was back almost the full nine months ago, and at that time they had 447,000 of these, which is actually seemed a little light to me, but nonetheless, that's what the Treasury Inspector General, who has performed an audit on the IRS's Employee Retention Credit processing procedures has reported as of August the 31st of this year. So that's the number that was in the pipeline. Here's the next number, 199,000. That's the number of unprocessed 941Xs as of September 21.

That's when the report was official from the Treasury Inspector General. Maybe I should back up here. The program itself is administered through the Internal Revenue Service, who you may have heard is getting a whole bunch of new employees, which may be good for processing all these 941Xs. The report where the Employee Retention Credit is now claimed. Okay, so just a little summary there. 447. That's 447,000 was in the pipeline. Now it's down to 199,000, so they're making some headway there. Next number 1099, that is the 1099 form that you report independent contractor wages on, and I include it here in the ERC numbers kind of as a misnomer because if you're filing 1099s on your workers, you are not going to get an Employee Retention Credit. These are for W2 employees only. No 1099s. Okay, so forget 1099 now that you've heard it, because it has nothing to do with the Employee Retention Credit.

Next, number 12. 12 is the number of months before the IRS started processing even one 9 41X or at the time the 7200 application form that is now no longer in use for the Employee Retention Tax Credit, but that's how long that they took at the IRS before they even started processing in any of these from the time that the legislation went down on creating the Employee Retention Credit, which was back in 2020. At the same time under the CARES Act as the Paycheck Protection Program, which you may remember was a feeding frenzy of free benefits, not really free. They had some strings attached to them. You had to spend that money on certain things, payroll, rent, utilities, mortgage interests for your business, not so with the Employee Retention Credit, but that is nonetheless the history of how things went. The IRS was, and maybe still is unmatched, untrained on many of the things that go into the ERC. And so they didn't jump on these things initially, but they are processing them as of now, which is great. Next number, $209,000. That is in our experience from doing many of these ERC applications through 941, that is the average employer retention credit that we have seen for our client employers. So $209,000, obviously that's an average, so some higher, some lower, but that's what we're seeing at this point. Over $200,000 for an employer and their business.

Next, number $34,924, so almost $35,000. That's the average number of dollars that our clients are seeing per quarter for the Employee Retention Credit. We keep close tabs on these, the metrics, and that's what it's looking like, 35, almost $35,000 per quarter.

Next, number six, that's the number of quarters that are in play in this program, and what I mean by that is you can qualify for one or more up to really six quarters for most businesses if you kept employees during the pandemic. So those quarters, just to kind of recap, are really Q2, 3, and 4 of 2020. Quarter one, if you had anything there that would qualify. There's really only two weeks in play from, I believe, March the 13th, I think of 2020 all the way till the end of that month, and if you had anything for that, you would flip it over to your Q2, 2020, 941 x, and then you also have in play Q1-3 for most employers of 2021. So to grand total there really of six quarters for most employees.

Here's the next number: 7. That's the number of quarters that you might be able to get if you were a, what's called a defined term there of being a new employer one that was established really in the throes of the pandemic, doesn't apply to that many businesses in our experience that have been applying for this. The Treasury Inspector General would beg to differ. I guess they're seeing quite a few of these, and they're concerned that these are not actual new employers. That's an argument for another day, but just know if you're a new employer you can bump the six quarters in play up to seven quarters in play.

Okay, next, number, 6.5, six and a half. That is the average number of months that it's taking for ERC businesses to see their quarterly ERC refund checks coming in. Okay, so based on that earlier study that I talked about that was performed as an audit on the I on the IRS, those ERCs that were in the pipeline as of September the 21st, that 199,000 of them growing I think every day just because new ones are coming into the system. Those should be technically processed on average by March the 15th of 2023, so about six and a half months from start to finish there. Okay, 6.5. Next number in this little game that we're doing here is 40. That is 40 is the percentage of ERC employers that we're seeing in our business doing these ERC credits for employers. That's the percentage of ERC people that were told by some other accountant or someone else that does their books, for instance, that they didn't qualify for this type of credit. We've talked on previous occasions here on YouTube and on a podcast about the reasons why.

There may have been some confusion there that certain employers didn't qualify when the professionals may have first looked at this program back when it really first started, or even currently. Those things are things like, Well, is the program still live even since the application, the old application for taking the credit has been retired and that the quarters are technically already over that go into the ERC calculation, or that there may be some confusion as to eligibility for an employer? In other words, did they have enough of a gross reduction in income or were they technically shut down partially or fully? Those types of misconceptions may have led to some of that and maybe just plain misinformation, but nonetheless, we're seeing a good number of people that actually do qualify for ERC that had originally been told that they don't qualify. So in other words, this is something that is worth taking another look at with a professional.

We'd love to look at it for you, and we do that at no charge. Okay? 95 is the next number. That's the percentage number of employers that we have dug in and looked at their eligibility and determined that they do qualify for at least one quarter, So 95%. 40% came in not thinking that they were being told that they hadn't any eligibility for ERC credits, and 95% is the actual folks that can take this that we've seen coming into us for ERC help. All right. Next number appropriately being the last one is zero, and that is the amount that an ERC business eligible ERC business must spend on allowed expenses, earmarked things, taxes, even. There is no tax due on ERC credit. That number is zero, so you don't have to spend it on anything in particular. Okay? It is really a reward, a rebate for keeping employees during the pandemic really and beyond. All right? Okay. Well, that was fun. If you have further questions, of course, hit us up here every week. We do this every Monday at noon central time, and I think you for tuning in. Have a great day.