ERC Application Issues: Troubleshooting Guide for Small Businesses

Written by Bryce Allen

The Employee Retention Credit (ERC) stands as a vital lifeline for businesses navigating the challenges posed by the COVID-19 pandemic.

This refundable tax credit, often referred to as the ERC or ERTC, offers crucial financial assistance to eligible businesses and tax-exempt organizations. Its significance cannot be overstated, particularly for small businesses striving to sustain operations and retain employees during these uncertain times.

The ERC serves as a beacon of hope for small businesses, providing much-needed relief in the form of a tax credit for qualified wages paid between March 13, 2020, and December 31, 2021. As businesses grapple with economic disruptions and operational setbacks, the ERC emerges as a valuable resource, offering financial support to help weather the storm.

However, despite its importance, navigating the ERC application process can be fraught with challenges. Many small businesses encounter hurdles related to eligibility criteria, documentation requirements, and timing issues. In recognition of these challenges, this blog aims to serve as a comprehensive troubleshooting guide, offering insights and solutions to address common issues faced during the ERC application process.

Through a detailed exploration of eligibility criteria, documentation challenges, and timing issues, this blog endeavors to empower small businesses with the knowledge and resources needed to overcome obstacles and successfully claim the ERC. By shedding light on common problems and providing practical solutions, we aim to streamline the ERC application process and ensure that small businesses can access the financial assistance they deserve.

Join us on this journey as we delve into the intricacies of the ERC application process, offering guidance and support to small businesses seeking to navigate these uncertain times with resilience and determination.

Common Problems in ERC Applications

As a leading expert in small business tax services, Rooled understands the challenges that many businesses encounter when navigating the Employee Retention Credit (ERC) application process. In this section, we will explore some of the common problems faced by businesses in relation to ERC applications, focusing on eligibility criteria, documentation challenges, and timing issues.

Navigating the eligibility criteria for the ERC can be a complex endeavor for many businesses. While the credit offers valuable financial assistance, certain requirements must be met to qualify. Common challenges include determining eligibility based on factors such as:

  1. Partial or Full Suspension of Operations: Businesses must have experienced either a full or partial suspension of operations due to government orders related to COVID-19. Determining whether a business meets this criterion can be challenging, especially when interpreting the scope and impact of government orders.
  2. Decline in Gross Receipts: Eligible businesses must demonstrate a significant decline in gross receipts compared to pre-pandemic levels. Calculating this decline and ensuring compliance with IRS guidelines can pose challenges for businesses, particularly those with fluctuating revenue streams.
  3. Recovery Startup Business Status: Businesses that commenced operations after February 15, 2020, and meet specific criteria may qualify as recovery startup businesses. However, understanding the eligibility requirements for this status and navigating the application process can be daunting for many entrepreneurs.

Documentation plays a crucial role in the ERC application process, providing evidence to support eligibility and the calculation of qualified wages. However, many small businesses face challenges related to gathering, organizing, and submitting the required documentation. Common issues include:

  1. Documenting Eligibility Criteria: Businesses must maintain records demonstrating compliance with ERC eligibility criteria, such as government orders, financial statements, and payroll records. Ensuring the accuracy and completeness of these documents can be daunting, particularly for businesses with limited resources or accounting expertise.
  2. Providing Adequate Documentation: The IRS requires thorough documentation to support ERC claims, including evidence of qualified wages and the impact of COVID-19 on business operations. Small businesses may struggle to compile comprehensive documentation, leading to delays or denials in the application process.
  3. Retaining Documentation for Audits: In addition to supporting ERC applications, businesses must retain documentation for potential IRS audits. Failure to maintain adequate records can result in compliance issues and penalties. Small businesses must establish robust record-keeping practices to ensure compliance with IRS requirements.

Timing is critical in the ERC application process, with deadlines and submission timelines influencing eligibility and the calculation of credit amounts. Businesses may encounter various timing-related challenges, including:

  1. Application Deadlines: Businesses must adhere to strict deadlines for claiming the ERC, with separate deadlines for different tax periods. Failure to submit applications within the prescribed timelines can result in the loss of valuable tax credits.
  2. Coordination with Other Relief Programs: Businesses that participated in other relief programs, such as the Paycheck Protection Program (PPP) or restaurant revitalization grants, must coordinate ERC applications with these programs to avoid duplication of benefits and compliance issues.
  3. Processing Delays: The IRS processing times for ERC applications can vary, with delays often occurring due to the complexity of applications and the volume of claims. Businesses must plan accordingly and monitor the status of their applications to ensure timely processing.

By addressing these common problems and offering practical solutions, businesses can navigate the ERC application process more effectively, maximizing their chances of success and accessing the financial assistance they need to thrive in challenging times.

Solutions and Troubleshooting Tips

As a leading expert in small business tax services, Rooled understands the importance of providing practical solutions to help companies overcome challenges in applying for the Employee Retention Credit (ERC). Below are key strategies to address eligibility hurdles, streamline documentation processes, and navigate timing challenges effectively:

  1. Comprehensive Eligibility Assessment: Rooled recommends conducting a thorough review of the eligibility criteria outlined by the IRS. This includes assessing factors such as business operations, government orders, and financial impact due to COVID-19. Seek professional assistance if needed to ensure accurate interpretation and compliance with eligibility requirements.
  2. Documentation Compliance: Rooled advises companies to maintain meticulous records documenting the impact of COVID-19 on their business operations. This includes retaining documents such as government orders, financial statements, payroll records, and employee headcounts. By ensuring compliance with documentation requirements, companies can strengthen their ERC application.

Tips for efficient documentation in ERC applications:

  1. Organize Records Systematically: Rooled suggests implementing a systematic approach to organizing and storing documentation related to the ERC application. Create digital folders or binders categorized by relevant criteria such as government orders, financial statements, and payroll records. This facilitates easy access and retrieval of necessary documents during the application process.
  2. Maintain Clear Documentation Trails: It is crucial for companies to maintain clear and concise documentation trails that provide a chronological overview of the impact of COVID-19 on their business operations. This includes documenting key events such as government-mandated closures, changes in revenue, and employee headcounts. Clear documentation trails not only streamline the application process but also enhance transparency and credibility.

Strategies to navigate timing challenges and deadlines:

  1. Proactive Planning: Rooled emphasizes the importance of proactive planning to meet ERC application deadlines. Companies should familiarize themselves with relevant deadlines and allocate sufficient time and resources for the application process. By planning ahead, companies can avoid last-minute rushes and ensure timely submission of their ERC applications.
  2. Regular Monitoring and Updates: Stay informed about any updates or changes to ERC application deadlines and requirements. Rooled recommends regularly monitoring IRS updates and consulting with tax professionals to stay abreast of any changes that may impact the application process. This proactive approach helps companies adapt to evolving requirements and avoid potential delays in submitting their applications.

By implementing these strategies, companies can overcome eligibility hurdles, streamline documentation processes, and navigate timing challenges effectively, thereby maximizing their chances of successfully claiming the Employee Retention Credit.

Throughout the blog, we have emphasized the significance of understanding ERC eligibility criteria, addressing documentation challenges, and navigating application deadlines. These issues often pose obstacles for businesses seeking to claim the ERC, but with the right approach, they can be effectively managed.

It is crucial for small businesses to recognize the importance of tackling these application issues head-on. Failing to do so could mean missing out on valuable tax credits and financial support during challenging times.

Therefore, we encourage small businesses to proactively implement the solutions outlined in this guide. By conducting thorough eligibility assessments, organizing documentation efficiently, and planning ahead for application deadlines, businesses can significantly improve their chances of a successful ERC application.

By taking these proactive steps, small businesses can enhance their eligibility for the ERC, maximize their tax credits, and navigate the application process smoothly. Together, we can overcome ERC application challenges and support the resilience and growth of small businesses in our communities.

About the Author

Bryce Allen

Bryce Allen is the Director of Tax at Rooled, Inc., in his 16th year of public accounting firm experience. He earned his Bachelor of Science in Accounting at San Jose State University. R&D tax credit guidance is a key area of Bryce's expertise.