Ep. 18 | Employee Retention Tax Credit (ERTC)
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Speaker 2:Welcome everybody back to teaching tax flow, the podcast, episode 18. Here we are. Excellent topic again. I know I say that every single episode, but this one really is just like every other one and every other one that's gonna come after it. I'm your host John Topolsky from the teaching tax flow team to my right, and he's always on my right.
Speaker 2:Miss Chris Pacure.
Speaker 3:Chris, how are you, buddy? John, happy Valentine's Day.
Speaker 2:Oh, I love you, man. Thanks. I say that because I've known you for two and a half decades. But, anyways, so enough about us. We actually have a couple wonderful guests.
Speaker 2:So we have two of them on with us. Because it's a Valentine's episode, we figured we'd share the love or they would share the love with us and both hop on. So we have Stacy Derew and Heidi Henderson from engineered Tax Services talking about the employee retention credit. So, hopefully, you don't know what that is, and then you can hear from the best. So how are you ladies?
Speaker 4:Fantastic. Thank you so much. We're excited to be on.
Speaker 3:We are very excited to have you on. Oh, I'm sorry. I already interrupted our guest, John. But you know what? I'm gonna interrupt this podcast because we forgot to mention our sponsor, Legacy Lock.
Speaker 5:This podcast is sponsored by Legacy Lock. If you are new to estate planning or simply need to review your current plan, Legacy Lock has you covered. Legacy Lock has a unique platform that enables you to easily complete your attorney drafted documents conveniently from the comfort of your home or office. Your first step to this peace of mind is visiting www.teachingtaxflow.com/legacy.
Speaker 3:I'm really excited to talk about this the ERTC. I'm a little bit feisty about it, a little bit passionate about it because as a CPA in my private practice, we know we know we said it's Valentine's Day, but what I do not love is a lot of companies out there, in my opinion, manipulating small business owners and getting them to think that they have FOMO and that they're missing out on all these credits and that these credits, in in potentially filing for credits, in an unethical fashion. So in teaching tax law, we say legally and ethically. Reduce the tax you pay in your lifetime. You should take advantage of any type of program, but but I'm so happy to have these ladies on.
Speaker 3:And and and, Heidi, to kick us off, could you give us a little information about the ERTC?
Speaker 4:Yeah. Yeah. Absolutely. You know what? I'm with you.
Speaker 4:I'm a little bit passionate, and I'm a little testy about it at the same time. I I feel the same thing. I mean, gosh, it almost feels a little bit like the whole ambulance chaser type mentality. This benefit came about. It's a tremendous credit.
Speaker 4:COVID related, this was a a a credit that was given to companies who were able to retain their employees throughout the pandemic. You know, there are companies that were massively impacted. I mean, right off the bat, what are some of the biggest ones? Restaurants. Right?
Speaker 4:A restaurant who's completely shut down or limited to only delivery or I'm actually in Las Vegas, and the restaurants here had 25% capacity if they were open at all. They were actually shut down for a long time. Once they reopened, 25% capacity only. So okay. Now they're functioning, operating.
Speaker 4:They have to have all their employees, their chefs, their waiters, but they can only fill 25% of their seats. I mean, this was really damaging. So this credit really is as significant as they say, but it is for companies who meet the criteria, and that is the caveat. That is where we're seeing companies getting crazy aggressive, going out in really hard pitch selling businesses to tell them that they qualify and then pushing the envelope in terms of what exactly qualifies and what does not. So do you wanna jump into that one?
Speaker 3:Well, I just get an email a week, and I and we are very, communicative with our client base, but a lot of people in our in our, private Facebook group defeating taxes will will ask and and say, hey. I just got contacted by the ERT consultants. Like, oh, okay. It's this company that just popped up, and, and they don't understand the criteria. So, yeah, could you give us a 30,000 foot view on, you know, what criteria we should be looking for, someone should be looking for to take advantage of of this credit for and and really reward pea we talk about, tax agencies are your involuntary business partners.
Speaker 3:So the government's rewarding us for doing the right thing and trying to keep people employed.
Speaker 4:Mhmm. Yeah. Absolutely. Yeah. And for companies, like I say, that qualify, the credit's amazing.
Speaker 4:It it's it's a gift on a silver platter that has provided a lot of revenue to businesses who really, really desperately needed it. In a nutshell, there are two criteria. They both do not have to be met. It's one or the other. But of those two criteria, they are pretty relatively black and white, so to speak.
Speaker 4:They are complex, so that's why you've had these companies pop up. It's complex. It's complicated. There's lots of ins and outs to doing the calculations. But 30,000 foot view, you can claim this credit for quarters two, three, and four of 20 20 and quarters one, '2, and three of 20 20 one.
Speaker 4:So three quarters of those two years, the highly impacted through COVID, those are the credit those are the quarters they apply to if you meet either a reduction in revenue that for 2020 was equal to a greater than 50% reduction in revenue compared to 02/2019. So we're gonna do the weeds on it, but in general, 50% reduction. For the credit in 2021, the company has to have seen a a a loss or reduced gross receipts of 20% as compared to 02/2019 or 2020 in the same quarter. So we can do all this sort of metrics to see first off, did they have significantly reduced revenues based on what they were doing before COVID? And if so, that can qualify them.
Speaker 4:The second qualifier then is, let's say, they didn't. Maybe maybe they were negatively impacted, but they still managed to do well and keep their revenues above these, you know, significant losses. The second criteria is that they had a partial or full suspension. Now this is essentially something that was government authority imposed. There was some restriction that we can fall back on that we can see specifically applied to them that restricted them from functioning at full capacity or partial, close their business.
Speaker 4:You know, the example in Las Vegas is, you know, they had shutdowns or 25% limitation on what they could do. You know, there are some areas I also live in Utah half the time. Utah did not have any mandatory restrictions. They really didn't. Companies continued to work, yeah, wear a mask, but companies were were functioning.
Speaker 4:So unless they have the gross receipt reduction, they're not gonna qualify based on the partial suspension. So that's really the two criteria that we're looking for.
Speaker 3:And that's a great point. And and a lot of times, it's funny how local or state policy impacts tax. Right? And Mhmm. I mean, in the I'm in the state of Tennessee I reside where there were very little restrictions where New York, California, some of these other states, especially California, had a lot of different restrictions, which Yeah.
Speaker 3:Was was is a bummer in a lot of ways for an entrepreneur, but also would make it easier to qualify Yeah. For this credit. And and and I know I, you know, I know there's some interplay with PPP as well, especially for 2020. This one was a weird and this credit was a weird one because, originally, I think for '21, the you you were able to get the fourth quarter, and then it went away. I think did they I don't know.
Speaker 3:Congress ran out of money or something happened there too.
Speaker 4:So Yeah. Exactly. They had originally when they first passed the bill, they said it was for 2021 when it started, which was second quarter and then through 2022. But or excuse me, 2020 and then 2021. And then as people and businesses started to claim it, there were so much activity.
Speaker 4:There were so many claims. It was really tremendous. But then, really, business came back quite well before the fourth quarter. So that's why they kind of backpedaled, and they made an amendment and cut that off just right as we were coming into the fourth quarter.
Speaker 3:So if a business owner you know, a lot of a lot of times we run into situations where business owners thinking, oh my gosh. Twenty twenty and 2021, I've missed out. Now as a practicing CPA, we know there's a statute of limitation, for for filing payroll tax returns. Can can somebody let's assume they meet one of or one of the eligibility requirements. Can they still go back and and recover ERTC funds or employer employer retention tax credit funds
Speaker 4:now? Yeah. Absolutely. To your point, statute of limitations is that you can go back. You and so to claim the credit, you have to amend the nine forty one and the tax return to go back and make an adjustment and get the credit.
Speaker 4:The statute of limitations, what that is, is it says you can go back and amend anything that you filed for three years from the date you filed it. So when we go back and we look at, let's say, the second quarter of twenty twenty when we filed a September, the date that was filed, it's three years from that date, which is where you're eligible to amend that to claim the ERC. Once we get to that date, you'll no longer be able to do that. So you still see a lot of these companies out there promoting this and encouraging businesses to claim the credit because it's a little bit short lived. Right?
Speaker 4:This is something that in another year, we're gonna completely lose the ability to take everything through, you know, quarter three of twenty twenty one. But right now, everything is still available to claim through those amended, nine forty ones or the the tax returns.
Speaker 2:So really a, excuse me, really a two part question or two separate questions for you. So one of them being that, what percentage of people do you believe even know that this exists? Because this is something that does not come up a whole lot in a lot of conversations, ironically, that I've been a part of.
Speaker 4:Yeah. It's a it's a good question. The CPA industry, I think, did not grab hold of it. I mean, it came at a time where to your point, Chris, there was PPP loans and there were all this stuff happening. Right?
Speaker 4:There was COVID plus regular tax returns. Just this whole also having to shift into, oh, now we have to work remote, which this industry has been one that has really not been, very cutting edge as far as technology. So there were all these changes, and ERC was just one more thing. You know, it's kind of like the straw that broke the camel's back. So a lot of CPA firms just were like, no.
Speaker 4:We're not dealing with this. You know? I didn't even see any email notifications or updates, you know, even from my own CPA saying, hey. FYI, here's this thing you may qualify for. It's worth considering.
Speaker 4:I think they were so overwhelmed. They're like, hey. Let's just not mention it. Maybe they won't notice, which is really sad. But, my point being that because it's complex, you end up with a situation where you've got this tremendous tax code, the CPAs understand.
Speaker 4:But that is also why I think a lot of these businesses sort of came out of nowhere and now are starting to send out all of these, you know, tier point emails. I had a client last week who actually well, a CPA client of mine I work closely with, send me an email from his client with an image. It was a screen. He'd taken a picture of a piece of mail he got, and it looked exactly like an an a piece of mail, physical mail you would have gotten from the IRS. It was in the IRS's, you know, computerized font, like, you know, coming out of DOS with, like, a dot matrix printer.
Speaker 4:It looked just with the perforated edge, it looked like an IRS document. And it was saying, you're eligible for, you know, you know, $27,000 in credits per employee and blah blah blah. And, you know, the the client the business owners are going, hey, CPA. Why didn't you tell me about this? I'm gonna work with these guys right now and get it.
Speaker 4:So it has taken a while to gain traction, but these companies have been very, very aggressive in pushing out those types of things and not even calling it employee retention credits. They're calling it different things, to try to get people to to look at it and let them file these credits for them.
Speaker 2:And then to follow that one up too, say somebody's listening to this and they you know, we started off, obviously, talking about the sharks. Right? Yeah. Those that are out there that just blatantly take advantage of the situation. What if somebody has already obviously been contacted by them, had pursued that relationship, and they don't exactly know if they qualify for it or if they've kind of, frankly, been kinda kinda screwed
Speaker 3:out of
Speaker 2:something or potentially on the other side could be in kind of a whole world of trouble. What would be your recommendation to them for next steps?
Speaker 3:Yeah. That's
Speaker 4:a that's a great question.
Speaker 2:Exactly where this is going. I just figured I'd get it out there.
Speaker 4:Yeah. You know, I have some dear friends. Some of my best friends, I've known them for years. They have a small business. And I told them about this two years ago.
Speaker 4:I said, you guys, you know, they've got a, like, a landscaping business. And I said, you know, depending on your revenues, you didn't you weren't impacted by shutdowns. But depending on revenues, you probably qualify for this. And this is, oh, no. Our CPA takes care of stuff like that.
Speaker 4:And we took PPP. We've got everything. And I said, no. This is different. This is new.
Speaker 4:This is an addition. And they they couldn't quite sink their teeth into it. And I'm like, look. They're my friends. I'm not gonna put the thumb screws to them.
Speaker 4:So I'm like, alright. You know, up to you, but be aware. So, you know, here we are a year later. Believe it or not, I'm on a plane with them to Europe. We're going on vacation.
Speaker 4:And we're sitting there. My friend says to me, we're so excited. We're working with this company for this payroll credit, and we're getting, like, $45,000 in credits back. We're super excited. And I said, what are you talking about?
Speaker 4:I said, wait a second. The one I told you about a year ago? And they were like, well, oh, no. I don't think that's the same. Yeah.
Speaker 4:Mhmm. Same thing. So fast forward. I said, look. Before you sign anything, you send me your stuff.
Speaker 4:They sent me all their p and l's. I ran everything. They do not qualify. Flat out, they do not qualify. They there were no shutdowns.
Speaker 4:They were they were landscaping, and they spray lawns. There was no shutdowns. They worked at full capacity, worked outside, had all their employees, and they did not meet the revenue reduction that the reduced gross receipts. They don't qualify. I'm having to tell my friends, listen.
Speaker 4:I'm sorry, but this 45,000 that they promised you, not not real. Listen. But he told us we do. Like, he's ready to file it. Right now, he said we do.
Speaker 4:I'm like, I love you guys. I know that you respect me. I know this is hard to hear, but you go right ahead and file that. You are going to get audited. You're going to lose it.
Speaker 4:You're going to get hit with penalties and interest, and you're gonna be in a world of hurt, and you paid these guys, whatever, 25, 30 percent they were trying to take of the credit then now you are completely out on. I said, I wish I could get I would love to get this credit for you. It is not worth the risk. It is not worth the penalties that you will end up eating at the end when you do this. So, if it's already been filed, honestly, I guess it is what it is, and you you hope you sleep at night and hope everything's fine.
Speaker 4:But if you're in the process and you haven't filed anything, I would make sure that you are really digging in, either talking with someone who's been around, and it's not a company that just, you know, found it a year ago and will be out of business next year, and, you know, or talk with your CPA and really dig into it. Just make sure that everything is substantiated and solid.
Speaker 3:I think what happened is, like, you know, PPP was so sexy for lack of better term, easy to get. Of course, when it came out, the first the first draft, we thought that that independent contractors were employees. No. Yeah. And and it's such a it is almost like you had two children.
Speaker 3:We played baseball. So let's say I had an 11 year old son and a nine year old son that played baseball. My 11 year old son's pretty darn good player, and he's an all star. But my nine year old son just plays on 11 year old son's team because it's easier for our family. And then by the time they're four you know, we look around and say, holy moly.
Speaker 3:The nine year old is the star here. Right? Because because everyone's focused on the 11 year old, the 11 year old being PPP. And, the ERTC is such a but the thing is banks don't make money on ERTC. ERTC.
Speaker 3:And and CPAs for us, we've made a decision very quickly that we are not gonna file these for our clients. We are gonna seek out the best advice possible and bring in people that are professionals. Mhmm. But everyone made different decisions, so some CPAs were able to monetize that being but just that was not our our what we did, and there was no wrong or right answer. I have a a couple couple more ERTC questions and a couple fun questions for you.
Speaker 3:If someone then this could be a yes, no, but is it just do you have to have employees to qualify for this credit?
Speaker 4:Yes.
Speaker 3:Someone okay. I know. I just just maybe and and are there excluded employees if someone's, like, a a a spouse or child? Or
Speaker 4:Mhmm. Yep. So so we're excluding anyone that has more than 50% owner in the company. So when we have spouses or family members that own a company jointly, we look at the percentage of ownership, then they cannot claim the credit against themselves. And then they can also not claim the credit for anyone who is related, who's a family member.
Speaker 4:So in laws and cousins and nephews and kids with lots of companies, lots of small businesses that qualify, but, you know, it's owned by mom and dad or maybe father, son. Then they've got, you know, two of their kids and a couple of cousins and nephew that are, part of their eight employees, and, you know, those five don't qualify. So, yes. That's an exclusion.
Speaker 3:And does the does the business still need to be active? What if what if I had a landscape business? What if I qualified, but things didn't go well and I'm out of business? But I did pay payroll taxes.
Speaker 4:Yeah. I mean, like I say, you can go back and amend, and you can claim on amended returns. So it's really gonna look at how much income tax was paid. What you we always look at utilization. Utilization meaning, did you pay income taxes, and is there something there to refund?
Speaker 4:Because because you're not gonna get a refund if you didn't actually pay something in. So we look at that to determine, you know, the application for those entities.
Speaker 3:Well, that is this is amazing. And I'm gonna you know, we we might have to come back later and do another ERTC episode because this is so so fun. We're gonna make sure that, the listeners know how to get a hold of of you and and, specifically, Stacy. Our we work closely with, engineer tech services, so we'll we'll get that information out. But we're gonna hit you up with what we call special guest rapid fire questions.
Speaker 3:So these are gonna be fun questions. I stole this idea from a good friend of mine's podcast. So are you ready for some less less, tax credit type questions?
Speaker 4:I guess I guess we'll see. I'm feeling the heat.
Speaker 2:Okay. I'm gonna actually find one.
Speaker 3:I'm gonna change one. Pete. Yeah. Alright. Favorite sports team?
Speaker 4:Oh, Las Vegas nights.
Speaker 3:Oh, hockey fan. Oh, hang on. There you go.
Speaker 2:We got a we got a problem already. It's just Oh. Podcast removes you from it. You're blessed.
Speaker 3:He's a Red Wing fan.
Speaker 2:I'm a Red Wings fan. So although I was there when y'all's mascot was released or announced.
Speaker 4:Oh, man. There's nothing like going to a Vegas Knights game. It is awesome.
Speaker 2:You guys were good. I'll say we're.
Speaker 3:They've done a lot of neat things that the national predators have done, and so it's really turned the the hockey game into an event. You know? Yep. Alright. Favorite hobby?
Speaker 4:Oh, I my my reprieve from life is horseback riding. I ride and train dressage horses and show dressage horses. So as soon as I get to get up from my computer, I get to go outside and and connect with my four legged friends.
Speaker 3:That's awesome. Mhmm. Favorite cereal?
Speaker 4:Cereal?
Speaker 3:Mhmm.
Speaker 4:Well, I guess we'll have to call it hot cereal. I I actually love cereal. My favorite forever was peanut butter crunch.
Speaker 3:Mhmm. Mhmm.
Speaker 4:But but yeah. I don't like, look. I'm almost 50, and I'm, like, really trying not to do sugar and carbs very much, so it's oatmeal now. Or, oh, muesli. Like, instead of oatmeal, it's like hot muesli because this
Speaker 3:Okay.
Speaker 4:Yeah. Mhmm. So that's it.
Speaker 3:I I I had a bad habit until I started, like, actually reading the side of a box and understanding what sugar meant. The Yeah. Oh, I'll just have cereal for dinner, you know, especially before I have kids and married, and I've been married now fifteen years. And, like, oh gosh. You know?
Speaker 4:Yeah.
Speaker 3:Yeah. Anyway, favorite beverage?
Speaker 4:Oh, beverage. You know what? I drink water and hot I drink weird things because I do healthy stuff. I don't drink coffee. I drink mud water, which is like it's like a cocoa mushroom coffee substitute, so very, very little caffeine.
Speaker 4:Drink tea, and then the only other thing I drink is kombucha.
Speaker 2:I love kombucha. I I love it. Especially when it's on tap as as weird as
Speaker 4:that sounds. I know. Well, now they're doing some hard kombuchas. There's we got some, you know, distilleries and breweries here in Vegas, and you can go get a hard kombucha on tap. And, yeah, it's pretty good.
Speaker 2:That'd I've been real cold.
Speaker 3:Interesting. Gosh. You get you're very healthy. That's I I've I'm impressed. Last rapid fire question.
Speaker 3:Ideal weekend.
Speaker 4:Oh, an ideal weekend. Oh, okay. I'm kind of a foodie, which is why I've also moved to Vegas. So ideal weekend, I would get up. I would actually get a workout in because I actually like to work out and not be in a rush for my first Zoom call.
Speaker 4:Then I would go out. I would ride a couple of my horses. Then I'd take a quick shower. We'd go to a Vegas nights game and then go have a killer dinner. Maybe dinner.
Speaker 4:We'll probably need dinner before the game. So that is, like, the perfect that's, like, the perfect day, I guess, Saturday. And then Sunday, we just hang. And and, actually, my husband rides too, so maybe we'll go out right through the desert on Sunday. Mhmm.
Speaker 4:I think that's a perfect weekend.
Speaker 3:I you know, it's funny. Whenever I go on vacation, I love to I like to exercise anyway, but I, like, down here, or, you know, I I end up finding some pickleball action, or or go for a run, you know, listen to a podcast. It's like just the feeling that I don't have to rush back to get to my next call is Yep. It like, if you go run leave for a run or go place at six in the morning is a vacation in itself. And then I'll feel good the rest of the day because chances are if I'm on vacation, I'm probably gonna eat or drink way more than I should.
Speaker 4:Yeah.
Speaker 3:Or in the stuff I shouldn't do.
Speaker 4:I'm with you. Yeah. I'm with you.
Speaker 3:Well, we want to make sure everyone can get ahold of Stacy. We'll put her, put all of her contact information into the into the the show notes. Make sure that, again, we've had a lot of clients on our private CPA practice really enjoy working with engineer tax services. Remind everyone to please check out our private Facebook page or group page or group, John? It's a group.
Speaker 3:Okay. It's a group. It's a
Speaker 2:group page. Defeating taxes.
Speaker 3:Please come check us out. We do have a teaching tax law Facebook page as well. We're trying to get us a lot of complimentary content out there.
Speaker 2:And that group too, Chris, I know I know we mentioned every once in a while, but it's actually a great, it's a it's a great place just to ask questions. And it's one of those things that really has become a resource for a lot of people. Right? So feel free if you do join that group, chime in on any of the conversations. We always welcome that.
Speaker 2:And then, also, if you had any specific questions or or comments, drop them in there on your own. I mean, our our entire team is on there. You'll see that we're very active in it as well as a bunch of our ambassadors, bunch of our content creators, really our whole our whole crew.
Speaker 3:Exactly. We'll we'll have Heidi post our weekly, I don't know, best restaurants in Vegas. I'm sure that'll that'll be a good poll. People would like that instead of the polls
Speaker 4:I Absolutely. Done.
Speaker 3:That'll be awesome. And thanks one more time to Legacy Lock for your sponsorship. And, and and finally again, ladies, thank you so much. This was a this was a blast, and we will definitely get you guys scheduled to come back on the podcast in the very near future.
Speaker 4:Sounds good. Well, thanks, you guys. It was fun.
Speaker 2:You as well. Thank you for joining us. Thank you for all the insight. I know I actually learned a learned a little bit. I mean, hanging out with Chris all the time.
Speaker 2:It's you know, sometimes that's impossible. I feel like I learned everything from him. But thank you for joining. Thank you everybody for for logging on with us here for a little bit. This is definitely one of those topics that you may wanna go back and listen to again.
Speaker 2:I know we dove into a little bit of the details there, so definitely share that information. Again, we'll share some contact information, for this crew here as well, and we will see you next week as always.
Speaker 3:Great, review, subscribe. Always.
Speaker 2:Got it back. Always, always. Thank you, everybody. Take care, guys.
Speaker 4:Perfect. Thanks, guys.
