In this week's episode, Travis answers questions about the Employment Retention Credit!
In this week's episode, Travis answers questions about the Employment Retention Credit!
Maverick:
Hello, my name is Maverick Rork. I am COO at Travis Watkins Tax. And do you mind introducing yourself to us?
Travis:
Yeah, you bet. I’m Travis Watkins, Principal and Senior Attorney at Travis Watkins Tax. We help troubled taxpayers and that is our niche, to help them file old returns, negotiate IRS deals, Offers in Compromise, file returns and really pretty much a full-service accounting department. And let me give you a quick background here too, on kind of how this is all relevant. Back in 2020, when the pandemic hit, we pivoted a little bit, some of our practice to the Paycheck Protection Program while the IRS was closed anyway. And at the same time as PPP was coming out, we were helping folks with this new thing called the Employee Retention Tax Credit. And we helped a few folks with that too, but now things have changed quite a bit with the ERTC as I call it. And that's what we're talking about today.
Maverick:
Yeah. Thank you so much for bringing that up. I've received a lot of questions from our clients. Just wondering what, what even is it?
Travis:
Yeah. a lot of people don't know. It's kind of been a little secret there, or if you did know, maybe you didn't think it applied to you because there's been a bunch of changes with the rules related to this thing. But in a nutshell, the Employee Retention Tax Credit is a reward to employers who have employees, I might add that kept those employees at a really tough time in America during the pandemic and beyond 2020 and 2021. And really what it is, if you qualify for this and we can talk about the qualifications here, because they've changed as well. But if you qualify, every quarter that qualifies you are entitled to up to 70% of that employee's pay up to a maximum of $26,000 per employee. So we're seeing some big checks come through for clients on this.
It can be a very good thing for you. And I guess the best part of this is it really is free, no strings attached kind of reward for keeping those employees during the pandemic. It's not a taxable thing. You don't have to spend it on certain things like more payroll, rent, utilities, those kinds of things that you had to pay or had to use that money on for PPP. It's just really a deal that you can take advantage of until the money runs out so to speak. There's $400 billion worth of credits out there. And you know, it hasn't yet started going too fast. So that's what we're talking about.
Maverick:
Why isn't this all over the news and why doesn't everybody know about this? I think I was reading the other day that about 95% of the fund is still left unspoken for.
Travis:
Yeah. I would have to say it's just because people don't know, businesses don't know, or they're under an old impression of what it used to be. And here’s the big hang up- when PPP came out and ERTC came out at the same time, there were some rules saying you can't take the ERTC if you've taken PPP money. So they became mutually exclusive, I guess, two types, one or the other. You could take PPP, or you could take ERTC, but you couldn't take both of them and that has changed, and so have some of the other rules that relate to the ERTC. We'll talk about a few of those here in a minute, but it's become more inclusive, so to speak, because not a whole lot of business owners were taking advantage of this thing. So, the Biden administration opened up the gates a little bit on this and we’ve got to think that as more and more business owners hear about other business owners getting big checks like this, it's going to start another type of frenzy, kind of like the PPP was.
Maverick:
So how can you qualify for this program?
Travis:
Yeah. Well, we can talk about how it used to be and how it is now, too. It used to be that you had to show either you had a full or partial shutdown due to COVID and that had to be documented by some type of governmental order or rule. You also, or instead of that requirement, you had to show that you had a substantial gross revenue loss and back in 2020, that meant that you had to show that 50% or more of your gross revenue had taken a hit. And as compared to that quarter in 2020, as compared to that same quarter in 2019, that requirement has changed a little bit. For 2021, the law now is that you only have to show a 20% reduction in your gross receipts.
The third one that you could fit under would be what they call a disruption in your supply chain. And that's the biggest, newest change in the requirements because, what does that mean? I mean we've all experienced some type of disruption in supply chains, and that doesn't mean just, you know, construction outfits that have had a disruption in getting materials and supplies, for instance. It means we've even seen law offices, law firms that since the courthouse was shut down, they couldn't get as many customers, as many clients. Everything's kind of up for grabs in that kind of catchall deal now, and it's letting more and more people into the program. The cool thing as it relates to these requirements is you can kind of pick and choose which one of those three that you want to use on a certain quarter.
So, for instance, if you were shut down some in the second quarter of 2020, but you opened back up in the fourth quarter of 2020, you can still look at the quarter four of 2020 in that scenario under these other possibilities, such as reduction in gross revenue of 50% or 20% as it relates to 2021. But the big change, the big requirement that I think is going to let more and more people in is, and I think the reason that the Biden administration even opened it like this was because supply chain deals disruptions. That's going to let more business owners qualify and start taking more and more of this limited pot.
Maverick:
That's huge. That's huge. Big change. So I actually had a gentleman call the other day and he was stating that his business is shut down now, but it was open during the pandemic. Can he still qualify for this?
Travis:
Yeah. There's no requirement built in that you are now still open and a lot of businesses, let’s face it, had to shutter because of all these problems. But there's no requirement that you still be open in order to get the benefits. You just had to fit within those confines that I just talked about. You had to have something to show for 2020 or 2021 in order to qualify.
Maverick:
So what have you got PPP during that time as well? Yeah.
Travis:
Yeah, like we talked about, at the get go of this thing, it was mutually exclusive. You could take PPP or you could take this tax credit along the way in this legislation, as it's changed now, they've done away with the PPP restrictions. So, in other words, if you've received PPP in the past rounds one and/or two of PPP, it's not going to prohibit you now from being able to take the ERTC. And I think a lot of people didn't realize it to the extent that they even knew that this program existed. They may have looked at it back in 2021 and thought, well, I got PPP, so I'm no longer or was never able to get this type of benefit. So, they just kind of swept it away and forgot about it.
Maverick:
Gotcha. So what if the only employees were the owner and let's say the owner's wife or husband, or kids, or cousin, do they still qualify?
Travis:
Yeah. Great point. And there's some confusion out there too, because if you'll remember back in 2020, they started off where you had to have employees to get PPP. You couldn't do independent contractors. Really, self-employed people were kind of at a disadvantage there if they didn't have additional employees. And they changed that rule to allow more people, to allow independent contractors to also take the PPP. To be clear, you do have to have employees for the ERTC to work. So no sole proprietor type stuff. That's also backed up by another rule relating to the ERC. They won't let you take the credit. Owners can't take it, and family members that are related to the owner cannot take it.
So those will be subtracted out of your calculation here. And let me talk about that calculation here as well. Once you've cleared that first hurdle that yes, you qualify because of one of those three reasons: you're shut down partial or full, you had a substantial reduction in your gross revenues, or you had a supply chain disruption. Once you've met one of those three for that quarter. Now you move on to the second part of this thing, and you figure out which employees, their non-owners get to be thrown into the calculation for figuring out how much you get. And once you do that, then you can get up to 70% of what you paid out for that quarter, and you can get multiple quarters.
Maverick:
Okay. Let's say that a business qualifies. What type of information should they gather and to get going on this?
Travis:
We’re proud to say that since offering this thing, we've got it streamlined down to about a 15-minute process. Like 15 minutes or more could get you a pretty big check on this deal. What you're going to need to show obviously is to fit into one of those three categories. You're going to need to have some backup and you're going to need to also show that in 2019, your numbers by quarter of what your gross revenues were then. You're also going to need to have a profit and loss statement. And that’s usually the main thing there to show comparison of quarters, whether you lost some in 2020 versus 2019 or quarters in 2021, versus those same quarters in 2019. So usually profit loss is what you're looking for.
You're also going to need to have 941s; what you paid those employees for each one of those quarters so you can do the calculation of how much you're going to be entitled to. Payroll, employee wise summaries would also help in that process so you can see exactly how much each one of those employees made up to a cap of $26,000. But other than that, those would certainly streamline our discussion with new clients about this. But if you don't have those things, we can help you get the documentation or you could kick it old school even, and get your bank statements and add those up by quarter and compare them.
Maverick:
Yeah. Let's talk about that for a quick second. Tell us about the risk if they try to do it themselves versus a professional doing it? A professional that has been doing it.
Travis:
Well, I mean, you could do it yourself. I would say could you cut on yourself instead of going to a surgeon? I guess you probably could through a lot of pain, if you have those thresholds, the real question is, should you do it yourself? And that's only something that you can answer. If you have someone who does this all the time like we have been doing, we can certainly bend the learning curve substantially and make this a much easier process, because we've seen all the pitfalls. Let me give you an example. Back in 2020 and 2021, up until the fourth quarter of 2021, the IRS was using a form 7720, and it changed a bunch of times.
You may have submitted it on the right form, and then months later when they take a look at this thing and say you weren't using the right form anymore and they would kick it back and make you start over, essentially. We've been through all those things, we know how to do all the appeals for it and resubmissions for it. Your rank and file tax preparer, maybe even your CPA may have done a few of these, but most of them we're seeing, they're just like the rest of us. They hadn't heard of this thing. Or they looked at it back under the old rules and said, “no, sorry, clients you're out. You're not going to be able to get this.” So there is going to be a learning curve for your CPA or professionals that don't do this every single day.
Maverick:
I've heard that quite a bit this week, where their CPA told them that they don't qualify for it and now we’re explaining to them that it's kind of opened up to a lot of businesses now.
Travis:
Yeah, it's not your fault. These things changed and there wasn't a whole lot of publicity about it. It's still a limited fund. There's $400 billion out there to get and, and honestly, if you compare that to the first round of PPP, which was $500 billion, that $500 billion got scooped up in 120 days. The demand certainly hasn't been that high yet, it's changing as more and more people hear about it. And you're going to want to be able to submit this correctly one time and let the IRS do its thing. It's going to take a little bit of time, but you don't want to have a bunch of starts and restarts and double backs. And you know, it is a finite fund and it's going to run out at some point.
Maverick:
So this is huge for a lot of businesses. This is going to open up and give them free money. Ultimately how do they get started and how do they reach us?
Travis:
Yeah. go to our website and we've got a tab at www.traviswatkins.com under the Employee Retention Credit Tab. There's an application there that will streamline the process for our discussion, which would be about a 15- or 30-minute consult free of charge by the way, so that we can start rolling the ball on how much you could be entitled to. Call 844-958-1178.
Maverick:
Perfect. Hey Travis, thanks for talking to me today. This helps out a lot.
Travis:
Yeah. Stay tuned on this medium because we're going to be breaking this thing down and we want the most people to take advantage of this thing. There's really no reason that you wouldn't want to do this deal. If you're a business owner or at least have it looked at again, if necessary to make sure that you don't qualify for some amount of aid here, I often say take the credit. You won't regret it. When the IRS, the federal government is handing out a finite amount of money, especially to reward you for keeping your employees paid during tough times, you take that.