Five Myths & Truths Surrounding Employee Retention Credits Under the CARES Act

Hear me out: If your business has not applied for the Employee Retention Tax Credit (ERC) under the CARES Act because you think you don’t qualify, it’s time to circle back and reevaluate. And if you don’t know about it, then get familiar.

Seasoned San Diego tax attorney Sam Brotman explains in his CLE course The Truth About The Employee Retention Credit that a shocking amount of businesses are leaving $100,000’s on the table thanks to myths, misconceptions, and poorly communicated guideline changes from the IRS since the inception of the credit in 2021 due to COVID.

Sam encourages all law firms, big and small, to revisit and explore this tax credit for what it is – a stimulus measure deployed to help local businesses. Due to a lack of information & general misunderstanding, many attorneys & businesses have glossed over the ERC – but knowledge can potentially be power to help recover $1,000’s or $100,000’s in tax credits.

Here are 5 myths & truths surrounding the Employee Retention Credit under the CARES Act:

Myth #1: It’s too good to be true. My law firm was barely impacted by COVID.

Truth: If your business experienced any employee changes, in-office to remote work, partial/full closures or suspensions, supply chain issues, or any other impact during 2020-2021, you are likely to qualify for ERC tax credit. Sam goes into great detail expanding on just how insignificant those impacts can seem, but can net you several thousand dollars.

Myth #2: My law firm does not qualify for ERC; we already looked into it.

Truth: The IRS has updated ERC qualifications numerous times since 2021 to make it more inclusive because it was originally too restrictive to be effective. Simply put – restrictions have been loosened, and applicants must display reasonableness of qualification, rather than meet specific criteria outlined in the program which are recommended, not required. In his course, Sam describes many high-level clients that were discouraged from applying by internal finance experts and even other firms, only to discover that they do indeed qualify for huge savings. He maintains it’s almost impossible for businesses to be unqualified for credit.

Myth #3: My law firm made too much revenue to qualify.

Truth: This is a moot point and has no bearing on this program. Qualifications for ERC applies to payroll and business modifications only, and are not tied to your bottom line. Even if your revenue increased, you are still eligible for tax credit.

Myth #4: I’m worried applying for ERC will inadvertently trigger an IRS audit.

Truth: Highly unlikely! Sam reassures his clients that, aside from safe harbor clauses in place to protect ERC applicants, payroll tax returns don’t draw a lot of IRS scrutiny, and have a much lower audit rate compared to lengthy personal tax returns. And if you still have concerns Sam welcomes you to reach out to him with questions. (No, really. He said that.)

Myth #5: Applying for ERC is not worth it. Too much work for too little return.

Truth: If you received $100k, would it be worth it? What about $100k+ or $1M+ for medium to large firms and business clients? Those are the kinds of returns Sam cites as he pushes for firms and businesses to take a new look at ERC criteria. He goes further to say the application is “much more straight forward than you think.” Perhaps the reality is: minimal work for huge return.

The takeaway here is that you could be leaving a lot of money on the table that could go to reinforcing your business. Even if you’ve explored it before, it may be worth 1 hour of your time to revisit this possibly lucrative tax credit. Despite a rocky start, the CARES Act Employee Retention Credit program has relaxed its requirements in order to accomplish its goal – support local businesses.

Given that they have extended the program to include retroactive applications, take it as a sign that maybe it deserves another pass. Afterall, it’s your money.

You can watch Sam Brotman’s CLE course, The Truth About The Employee Retention Credit, online at Attorney Credits. Log in or sign up to get started!

Related articles: The Truth About the Employee Retention Credit (ERC): An Informative & Practical Tax CLE