There's a lot of confusion around the popular employee retention tax credit and how it works. Is ERC a tax refund, a loan, or a grant? Find out more.
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What’s the difference between an ERC refund, an ERC loan, and an ERC grant? Which one is right? How do you apply?
Have no fear, the ERC experts are here! We’ll walk you through the basics of the Employee Retention Credit (ERC) and how you can take advantage of this unique tax credit.
While the information about this tax credit could fill several books and websites, we’re going to attempt to break it down in a paragraph or two and answer some of your questions before you have to ask them.
The ERC is a payroll credit and functions as a reimbursement for a portion of the payroll taxes you paid during COVID-19 shutdowns. It’s a way to reward business owners for continuing to pay employees even when their businesses were forced to close.
The IRS may reimburse your 2020 and 2021 payroll taxes up to $26,000 per employee.
Unfortunately, the process isn’t as simple as completing a basic application and receiving a check in the mail. The ERC has a difficult and complicated application process (probably by design) and many businesses fall prey to ERC scammers claiming to file these tax forms on your behalf. Make sure to vet any preparer you consider thoroughly.
While there is still plenty of time, keep an eye on the ERC deadlines so you don’t miss out on money that already belongs to your business! Be aware, also, that there has been a swell of ERC scams and other questionable claims. This has led the IRS to temporarily pause the processing of new ERC claims as of 9/14/2023.
Have you already submitted a claim? Great! Existing claims are still being processed and you can still submit a new ERC claim through reputable ERC specialists. This will ensure that your claim is processed once the moratorium ends.
The first thing you need to know is that there is no such thing as an ERC grant.
The Employee Retention Credit (ERC) is a refundable tax credit for businesses that had employees and were affected during the COVID-19 pandemic shutdowns. The ERC is not a grant. However, it behaves very similarly to a grant because it can be seen as “free money” like most tax credits.
If you qualify for the ERC and you file your paperwork properly, you will not have to repay the money you receive. It’s technically even better than a grant because it’s open to more businesses and anyone eligible can apply successfully.
Great news, right? Right!
Ok: but what does this have to do with an ERC loan?
If your business qualifies for the ERC, you can actually bypass any IRS processing delays by applying for an ERC loan.
An ERC loan is a form of financing offered by some ERC lenders as a solution to the IRS’s 12+ month backlog of claims. With these loans, business owners are able to receive their funds in as little as three business days.
ERC loans operate as an advance payment for your ERC refund. You will have to pay something — either an interest rate or other fee(s) — to your lender, but even with that loss, ERC loans could be a lifesaver for businesses that need a cash flow injection while waiting for their full ERC refund.
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