Beware or Be Aware? The hidden story about expiring ERTC Covid relief

IMPORTANT NEWS - JUNE 2, 2023

There’s a little followed story with great consequence happening right now in business and nonprofit circles across the U.S.

In 2021 Congress made available a payroll refund to reward local businesses and nonprofits that kept employees on payroll during the pandemic.  It’s called the Employee Retention Tax Credit, or “ERTC”.  Small and mid-sized businesses and nonprofits under 500 employees who paid payroll taxes can get refund checks up to $26,000 per employee from the Treasury.  It’s real, it’s retroactive and time is running out.   The spirit of the policy was simple.  Reward small business owners for keeping people working in communities across the U.S. as opposed to many big institutions and governments who laid people off or got bailed out.  

It has recently been reported that over $200 billion has been paid under the ERTC program, meaning it covered about 10 million middle-class workers whose small employers kept them on during difficult COVID times.  By comparison, over three times, or $653 billion was paid by Washington to support over 10 million often long-term unemployed during the pandemic-era under the FPUC, PEUC and PUA programs.  These were supplemental to the vast unemployment benefits paid by the States.  Further, the ERTC is only 3% of the $5 trillion in other COVID relief paid by taxpayers.  

Most Americans would agree that the ERTC provided the right incentives under our free enterprise system to keep middle-class people employed with purpose and their communities intact. 

In April 2023, U.S. Senator Warner of Virginia said “And one of the things we put in place during COVID, again, a bipartisan piece of legislation, which I think was well intended to make sure that employers kept people on during COVID rather than having to put them on unemployment…They can't get clarity. They're not getting these tax credits, which I think they did deserve. And since these are businesses that did, from a policy standpoint, what I think we all thought was the right thing by keeping folks employed during that period.” 

And in May 2023, U.S. Senator of New York said, “At the height of the pandemic, thousands of small businesses did the right thing and kept their employees on payroll, They were promised reimbursement, but years after the fact, they still haven’t received it. I am calling on the IRS ….to get our hard-working small business owners the refunds they deserve.”

Distributing relief money to large institutions, trade groups and State and Local governments was relatively easy and controllable.  Doing the same for the thousands of small businesses across the U.S. is really hard.  To avoid scams and ensure that the money got to the right people, Congress decided to administer it through the IRS.  As one could imagine, the rules and information on how to get the refunds are challenging for a layperson to understand.  Nevertheless, the ERTC policy is effective, well managed by the IRS, and extremely helpful to small businesses, nonprofits and local communities.

Despite the policy’s success, some tax preparers are wary about it and don’t know if, how, when and to what COVID relief their clients are entitled.  But the ERTC really has nothing to do with taxes or debits and credits.  Unfortunately, fraud compliance and second-guessing eligibility is now the topic of controversy.  It misses the point.

In order for small organizations to get the money, a simple payroll form must be prepared– but it belies the true amount of work necessary to compute the amount and timing of the refund.  Many tax preparers feel that if a business had more receipts in 2020 or 2021 then they aren’t “in need”, are therefore not eligible, and run the risk of being audited.  This is not necessarily true if they did the right thing and kept employees on during the pandemic.  Everyone knows that $ receipts went up because of price inflation.  Congress recognized this.  Importantly, the rules also have an alternative, non-absolute method that evaluates a “partial” impact of government restrictions on trade to each particular business or nonprofit– not counting money.  It is understandably confusing and requires operational experience and detective work.  As a result, almost every small business needs help to properly prepare their eligibility and compute the refund.  

Some “experts” have said that there is fraud and abuse and there are pushy salesmen taking advantage of the system.  The IRS also says to beware.  True enough, but isn’t that always the case?  Most business owners don’t look at the world that way.  They are smart enough to know that a fraction of people make unreasonable complaints, steal things, or don’t pay their bills.  But they also know 99.9% of good people do the right thing. 

If a business or nonprofit felt pain in 2020 or 2021 chances are they may qualify.  Congress did this.  No one else did– not even the IRS, who administers the refund.  In our experience, IRS agents have been nothing short of professional, helpful and accurate under a deluge of demand for refunds and COVID relief they never signed up for.  So let’s give them a big thanks for a change.

$26,000 per employee is not trivial.  To illustrate, if an employer had 50 employees that’s over $1 million that can help pay better wages and benefits, lower prices for customers, pay for excess inventory, lower debt, and keep the doors open.  And everyone should cheer this because the benefit is taxable meaning States and localities win too.

So, what are business owners waiting for?  Business owners and nonprofits should take back control and look hard at the ERTC.  There’s already a lot to worry about with banks, high inventory, labor costs, or the looming recession outside their control.  Leave that for the “experts” to figure out.

—-
Michael Grosberg is the President and CEO of Boston Growth Partners, LLC, a middle-market management consulting firm and can be reached by visiting www.bostongrowthpartners.com