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Learn How 1 Company Unexpectedly Claimed Nearly $2.5M in ERC

The COVID-19 pandemic has impacted nearly all businesses in one way or another. One Janover client, a staffing company, took a particularly stiff hit.

“They were decimated,” said Janover Partner Anthony Napolitano CPA. “They’re still working through losses, but thankfully they qualified for the first and second rounds of the Paycheck Protection Program (PPP), which provided them with a pretty good nest egg to float those losses to keep the lights on.”

As it was for most companies, that hit came in the second quarter of 2020 with a 90% drop in revenue over the same quarter in 2019. The company was working with a different consultant who was assisting with its PPP first draw forgiveness process. Because of the initial rules under the CARES Act, which did not allow businesses that took PPP to claim the ERC, management was under the impression the ERC wasn’t an option.

“I reached out to the CFO in the first quarter of 2021 and said we need to talk about the ERC. He said, ‘we don’t qualify.’ I said again, ‘we need to talk about the ERC,’” Napolitano said. “So we set up a call with the Janover ERC Task Force, we reviewed their data, and, low and behold, discovered they were eligible to claim the ERC for at least the first and second quarter of 2021 (and are on track to qualify for all four quarters of 2021).”

While Napolitano has helped the client apply for nearly $1 million in credits for the first quarter of this year on wages paid to nearly 330 employees, he estimates the client will qualify for about $1.5 million for the second quarter and more than $4 million for all of 2021.

“They’re now getting more money than they anticipated, which will most definitely help them keep the lights on and make key planning decisions over the next year,” he said.

Expanded Eligibility Requirements

Under the CARES Act, companies initially were only able to claim the ERC if they had fewer than 100 full-time employees in 2019, and they could not claim the ERC if they were a PPP borrower. Subsequent updates to the ERC under the Consolidated Appropriations Act, 2021 and  The American Rescue Plan Act, signed into law on December 27, 2020, and March 12, 2021, respectively, expanded the eligibility of the ERC. That allowed employers with fewer than 500 average full-time employees and those who received PPP loans eligible to apply for the ERC, among many other expansions.

“Businesses generally rely on what their accountants and trusted advisors tell them, and if they or their professionals don’t know the program, business owners are just making an assumption they don’t qualify,” he said.

 Maximizing Resources and Relief

The company already has received forgiveness for its first PPP loan, but Napolitano is now working with them on their second-draw PPP loan to maximize the ERC funding they can receive, which can be tricky.

Since companies can’t consider the same wages to qualify for each program, a level of coordination must happen.

“You have to coordinate the two,” Napolitano said. “We want to maximize the resources and relief available, so it requires a complex analysis to leverage both programs.”

This company paid more than 700 employees in 2019, but they weren’t all full-time.

Once the Janover ERC task force reviewed the client’s data, the employee count came out to nearly 300, thereby qualifying them for the 2021 ERC. The confusion on not being initially eligible most likely resulted from a combination of incorrect interpretation of the full-time employee rules and the fact they were not aware of the PPP and ERC interaction updates.

 Check Your Eligibility Today!

Applying for the ERC can be a complicated numbers game, and it’s something Napolitano advises companies don’t do themselves. “You need to understand your calculations and how you arrive at the employee count and eligible credit,” he said.

Have you been told you’re not eligible to apply for the ERC? Most companies do not think they qualify and have found out they do. Click here to start the process!

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