May 5, 2023 Understanding the Employee Retention Credit

Here are some common myths about the Employee Retention Credit.

Myth 1: Manufacturers were called “essential businesses” during the pandemic so they can’t claim any funds since they could remain open.

While it’s true that many manufacturing companies were able to continue operating during the pandemic, this doesn’t necessarily mean that they are ineligible for the ERC. The IRS has kept the definition of a government shutdown fairly open, allowing room for varying situations. Depending on a business’s operations during COVID-19, it may qualify for the ERC for partially suspended operations. However, a word of caution here: Many employers were subject to government orders requiring them to modify their operations, such as social distancing or the sanitizing of equipment or furnishings. For a manufacturer to qualify for an ERC, the IRS requires that a government order caused more than a nominal effect on operations.

Myth 2: Businesses can’t qualify if they received a PPP loan. 

Originally a business had to choose between the two, and most opted for the PPP loan, but this is no longer the case. It is possible to apply for the ERC, even if you received PPP funds. You’ll want to check with a qualified professional to determine if your business may be eligible.

Myth 3: Companies that were affected by supply chain issues can automatically claim this credit. 

Many manufacturers were impacted by supply chain disruptions over the last three years. However, the IRS has said that in order for a business to claim the ERC, it must have been unable to obtain critical goods or materials from alternative suppliers, forcing its own operations to be fully or partially suspended. This means that you’ll need to go beyond just demonstrating that your business experienced supply chain issues.

Myth #4: All businesses that help claim the ERC use similar processes. 

If a company makes false claims that you’ll qualify before careful evaluation or makes promises that seem too good to be true, think twice about working with them. Choose a provider that pledges to carefully follow the law, applies a rigorous process, and works with knowledgeable independent tax experts to evaluate whether your business is eligible to receive an ERC refund.

The ERC can be a valuable resource for eligible manufacturing companies that kept employees on payroll during the pandemic. Despite the common myths, many businesses in the manufacturing sector may still be eligible for the ERC. It’s important to do your homework on companies offering ERC assistance to make sure they’re ethical, skilled, responsible and trusted partners. With those parameters in place, this program can be a fantastic benefit for manufacturing businesses that qualify.

About the author
Howard Makler is the co-founder and CEO of Innovation Refunds, a dedicated team of champions for small businesses who, along with a network of independent tax attorneys, CPAs, and tax professionals, have helped over 13,000 companies claim billions of dollars in ERC refunds. Innovation Refunds’ value is derived from its extended network of enterprise partners, financial institutions, cutting-edge technology resources, and trusted advisors.

Subscribe to Industry Today