10 Misconceptions About Startups
Any company that meets the following criteria is considered a recovery startups business:
- Commenced company operations after February 15, 2020
- An average of $1,000,000 or less in annual gross receipts
- Employs a single employee or more
- Not eligible based on other requirements
You are eligible for ERC if you match the aforementioned criteria. Startups in recovery receive a different recovery amount than typical small firms do.
For the third and fourth quarters of 2021, a recovery startups may submit a maximum credit of $50,000 each quarter. Included in qualifying salaries are sums paid for group health insurance.
1. A Startup Company in Recovery Can Receive an ERC
Your new firm can conserve as much as $7,000 per eligible employee each quarter. Startups can only save up to $50,000 in total per quarter.
You may be able to recover $50,000 per quarter, depending on how many workers you have overall and their salaries. The application period for this credit is two quarters. You might get a $100,000 payroll tax credit in 2021 if you use it to the maximum in both Q3 and Q4.
2. If You Have PPP Loans, You Can Apply for ERC
Prior limitations were eliminated when Congress passed the Consolidated Appropriations Act (CAA) of 2021. Before it, firms could only take part in the ERC or the Payroll Protection Program (PPP). You can apply for both through the CAA.
Only two and a half times your monthly payroll costs are taken into account for PPP loans. The loan is intended to be repaid over six months. There are still a ton of unrecovered labor expenses that you can get back by requesting ERC.
3. You Don’t Require a 50% Discount
The initial requirement of a 50% decline in receipts from 2019 to 2020 is no longer applicable. You can now qualify with receipts that have been reduced by 20%.
Depending on the quarter, the qualifying percentages range from 20% to 90%. Making ensuring that the claims only cover the earnings of qualified employees is one of the other variables that affect a claim’s capacity to get ERC.
4. With a Partial Shutdown, You May Be Eligible
Many startups owners think they can only be eligible if they entirely stopped operating during the outbreak. If your local, state or federal government issued a partial suspension order against your company, you might be eligible.
You may be eligible for ERC relief in the following circumstances:
- Partial closure
- Impact on business
- Inability to use equipment
- A small capacity
- Supply chain interruption
- Vendor closure
Did the government trigger a partial or whole suspension of your business? You meet the eligibility requirements if the required government suspension prevented your company from carrying out all of its regularly scheduled activities. As well as materially affected business operations.
5. Essential Companies Cannot Apply
Even vital enterprises are affected by the pandemic. You might be operating as a necessary business even while your suppliers are unable to provide your goods. Perhaps you need to go to a client’s job site, but shutdown orders make it impossible for you to do so.
These are situations that can make your business eligible for ERC. You can also run a firm where some areas are required to remain open while others are required to close down by law.
6. The ERC: Will it Lead to an Audit?
It has no bearing on whether the IRS chooses to audit you if your business accepts tax credits for which it is eligible. The fact that so many businesses have failed to claim the IRS employee retention credit is the only reason you might hear larger numbers for audits of those who accept payroll tax credits. The percentage of audits rises as there are fewer filers.
You have no worries if you maintain correct records and keep all supporting paperwork. The opportunity for $100,000 in tax credits is worth more than the danger of an audit.
7. Recovering Sales Disqualification
You can still be approved for credit if your sales increase during the first quarter of 2021. When determining to qualify, one has the option of going back a quarter of a year.
A review of lost revenue in 2020 is taken into account to qualify. Additionally, qualifying factors are stated for any complete or partial suspensions.
You can still be qualified for tax credits if your company expanded during the pandemic. If you experience a partial or complete government stoppage, you won’t be penalized for collecting a tax credit.
8. My Tax Advisor Claimed the Credit on My Yearly Tax Return
Even the best CPA in the state won’t help you if they failed to claim the employee retention credit on your yearly tax return. The ERC is not a part of your annual income tax return. Rather, it is only accessible on Form 941, or by submitting a Form 941X.
9. My Business Is Ineligible if It Has More Than 500 Employees
Full-time equivalent (FTE) employees are used as the basis for the employee count. Not only should you do a head count, but you should also take into account each employee’s unique situation.
FTE does not include any employees who received pay for working part-time or for doing no work at all.
10. Is the Purchase of an Existing Company Considered a Startup?
A startup opens a brand-new store. What if you buy a cafe or store that’s already open for business? The answer is that you qualify because the business is new to you.
A recovery startups businesses were defined by Congress as employers that started running a trade or business after February 15, 2020. You are a new employer if you purchased the company.
Reasons to Hire a Professional
You have the chance to recoup thousands of dollars for employee payroll costs thanks to the employee retention credit. There have been many revisions to the law since the CARES Act came into effect. Each modification increases the scope of the collection and qualifies more companies.
You must use the appropriate forms to apply for or modify your filings. Depending on what stage of the process your firm is in, the appropriate form will vary.
A three-year lookback window is available. You don’t want to make a mistake or omit a step that results in you missing the deadline.
Find out if your company qualifies for a Paycheck Protection Program (PPP) loan or an employee retention tax credit.
Declare a Credit for Employee Retention
Applications and modifications for the Employee Retention Credit and the Paycheck Protection Program are our areas of expertise at Your Part Time Accountant. Contact us if you have any inquiries, worries, or think you need to change your filings.