The ERTC’s eligibility period has recently changed
For small businesses, navigating the 2022 tax season will prove more challenging than ever with considerations regarding federal programs like the Economic Injury Disaster Loan (EIDL) and the Employee Retention Tax Credit (ERTC). NFIB invited Joshua Jenson, aka “JJ the CPA”, to go over these programs and others in a free webinar.
“We know that, as of Monday in the infrastructure bill that became law, that the ERTC ends effective September 30, 2021,” said JJ in reference to the Infrastructure Investment and Jobs Act that was signed into law on November 15. “I can hear you right now: ‘But that’s unfair!’ What we have to remember is the law is like the Terminator. What’s the job of a Terminator? To terminate. What’s the job of the law? To be the law. It doesn’t matter if it’s unfair, it’s no longer available in fourth quarter. It was, it no longer is.”
“Now I get that there may have been those that have already taken advantage of it. What I would recommend is if you filed a Form 7200 and you got the money in advance, that you hold onto it. If you reduced down a payroll deposit, then you need to be setting that money aside and being prepared if you need to pay it later.”
However, JJ notes that while the ERTC no longer covers the fourth quarter of 2021, it can be applied to anytime else in the original window. “The ERTC is still available for wages that you paid from March 12 of last year through September 30 of 2021,” he said. “So it’s not that it went away, it’s just no longer available on the qualified wages in fourth quarter.”
Another tip JJ has is to make sure you have the right paperwork to collect on the ERTC. “Regardless of how you go about getting the actual ERTC, you must report the wages on a Form 941. So unfortunately, there are those who filed a form 7200, they got their money and they went about their business. But if it never got reported on a Form 941, they need to go back and file it on a 941X. That’s where you actually get to take advantage of the credit.”
When it comes to the EIDL, JJ cautioned to think carefully before applying it to any expenses besides operational expenses. “If you find yourself going, ‘could I use it for this? Well, what about this?’ Most likely that’s not an ongoing operational expense. Can you pay yourself with an EIDL? Yes – but only if you’re providing services. You’re not going to be able to do it for distributions or profits,” he said.
“The one thing I want you to know here is that this is a loan, so coming up with ways to pay yourself is like hitting your hand with a hammer. All you’re doing is borrowing money, turning it into taxable income to you, that is also subject to payroll tax. Not a smart move.”
In addition, because the EIDL is to make up for economic injury, it can only be applied for certain periods during the pandemic. “One thing I really want you to understand is that you’re only really able to borrow and use it while you are in an economic injury,” JJ warned. “So what you want to pay attention to is what was the time period? Are you coming out of economic injury? When you look at what the rules are related to this, then you need to pay back immediately, or at least within 36 months. What money you didn’t need once you got out of economic injury, you need to pay back.”
After discussing the EIDL and ERTC, JJ went on to do a third presentation on the PPP. He then took questions from NFIB members.