Avoiding Common Mistakes with the Employee Retention Credit Stimulus


As companies nationwide dare to weather what has been one of the most challenging economic years in recent history, they can tap into the ERC stimulus, which provides relief and reimbursement to businesses struggling to maintain a healthy cash flow. This article will explore the most common pitfalls businesses should be aware of as they strive to maximize the Employee Retention Credit Stimulus program and provide tips to help employers take full advantage of all its benefits.

Not Eligible for the Credit

Among the most common mistakes employers make with the ERC stimulus is failing to understand the eligibility requirements for the credit. To avoid this mistake, employers should take time to understand the eligibility requirements for the credit and use the IRS’s “substantial decline in gross receipts” calculator to determine their eligibility. Employers should also document how the pandemic has affected their business to satisfy any IRS audits.

Failing to Maximize Credit Amounts 

Some Employers aren’t aware that the credit amounts are based on the wages or compensation paid per employee per quarter. To maximize their credit amounts, employers should pay their wage and salary costs in full before the end of the calendar year to maximize the credit amounts available for the next quarter. Additionally, employers should understand that wages paid to employees not physically present at the worksite are eligible for the credit, including wages paid to employees working remotely.

Not Maximizing the ERC Credit Amount 

To be eligible for the total ERC stimulus amount, some employers don’t know they need to have paid the wages or salaries of their employees in full before the end of the calendar year. Additionally, employers should not pay more than $10,000 in total wages per employee per calendar year. Otherwise, their ERC credit amount will be reduced to a certain extent. To maximize the credit amounts available, employers should also ensure that their wages or salaries paid in 2020 and 2021 meet the specified criteria for the ERC.

Not Estimating Taxable Income 

Some employers do not accurately estimate their taxable income to claim the total ERC stimulus amount they are entitled to. To mitigate this, employers should track their business financials, such as revenues earned and expenses paid, to ensure accurate taxable income calculations. Additionally, employers should ensure that their taxable income calculations include any applicable credits or deductions, such as the ERC credits received from the IRS.

Not Filing for the Credit on Time 

To claim the total ERC stimulus amount, employers must file for the credit on time. To do this, employers must file Form 5884 with the IRS no later than they file their federal income tax return. If employers fail to file for the credit by the due date, they will only be eligible to claim a lesser amount as a tax credit.

Not Understanding the Employer Savings Fund 

Some employers don’t understand the Employers Savings Fund, which provides employers with refunds of their ERC credit payments. To ensure employers receive the full refunds, they should ensure that their ERC and Employer Savings Fund information is up-to-date, complete, and accurate. Additionally, as the ERC program is constantly being updated and revised, employers should periodically check the most recent IRS information.