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Myths about the ERC

Written on Oct 27, 2022

By Jessica Salerno-Shumaker, OSCPA senior content manager  

One CPA said the employee retention tax credit is overlooked by many organizations that might be eligible to take advantage of the credit.  

“This can be a complicated piece of legislation to discern whether an organization is eligible,” said David Cepek, CPA, client recovery agent at ERC Application.  

Cepek will present a session in the ERC at the upcoming December MEGA Tax Conference and help clear up some misconceptions practitioners and clients might have about the credit.  

The ERC applies for 2020 and 2021 and there is a three-year window to file an amended return. Since this credit applies to quarterly activities and ends up being amended 941 or the quarterly tax return, clients have three years from the date they filed that return to file an amended return with the ERC component included in that.  

One of the more common misconceptions about the ERC is that organizations and small businesses that received funds under the Paycheck Protection Program aren't eligible to receive the ERC.  

“This is certainly false,” Cepek said. “It was true back when the legislation was drafted and implemented in 2020. But it was later expanded with a major rewrite of the code in late 2020 to allow businesses and organizations to receive both ERC and PPP.”  

Some businesses mistakenly believe that because they didn’t qualify for the PPP, they also don’t qualify for ERC. Cepek said it’s important to remind clients that these are two separate programs with their own set of requirements, and not qualifying for one does not disqualify you from another.  

He said that businesses that had an increase in revenue during the pandemic should also still investigate the ERC credit. While companies in all industries should look into this credit, those in the restaurant industry are particularly well-suited. 

“Just a few months ago, the IRS would tell you that 80% of the of small businesses and not-for-profits were eligible for this credit, and there probably was only 30 to 40% that actually claimed it,” he said. “You can see there's this big group of folks that just were not clear on whether they qualified.”  

Register for the MEGA Tax Conference here.