Common Questions About The ERC
Telling people about free money they can claim can raise a lot of questions. We have collected the most common questions we hear and answered them below!
Why do I need an LLC?
The Employee Retention Credit is designed for small businesses, so you have to have an LLC to qualify for the ERC. Starting an LLC as a 1099 contractor is a common practice and is a smart way to save on taxes.
What's the difference between an LLC & SCORP?
There isn’t a huge difference. In fact, an SCORP is a type of LLC. If you already have an LLC, changing it to an SCORP only changes how it’s taxed, it won’t change your EIN number or business name. S corporations have better self-employment taxes compared to an LLC because the owner can be treated as an employee and paid what’s called a “reasonable salary”. This salary you pay yourself through an SCORP is what qualifies you for the ERC.
What's the annual cost for upkeep for an SCORP?
Annual upkeep for an SCORP is minimal, especially relative to the tax savings you will see. You will need to pay quarterly taxes ($55 each quarter through COS Accounting) and depending on which state you live in, a small LLC renewal fee. The average COS client sees about $2,500 in tax savings each year by switching to an SCORP.
How does unemployment impact my ERC eligibility?
Because the ERC is an *employee* retention credit, taking unemployment can disqualify you. The IRS will see you claiming an employee credit, while also taking unemployment, and consider it double dipping, which is frowned upon.
Can I still claim the ERC if I took unemployment?
There are still ways to claim the ERC if you yook unemployment, unless you have been taking it every week since March. If you have taken unemployment 4 weeks or less in each quarter (so 1 month out of every 3), it is still possible to claim the credit. We suggest talking to one of our accountants and they will make sure you qualify before moving forward.
What if I received an EIDL or PPP loan?
If you received PPP funds, you are disqualified from the ERC. However, PPP is different from the EIDL. The EIDL was a loan or grant (depending on which you applied for) from the SBA, and you can still claim the ERC if you received the EIDL. Make sure to double check which loan you received before applying for the ERC.
How long until the check gets to me?
What we have seen is that the IRS takes about 12 week to send the check after the date of file. This means if we file your ERC with Q4 (December), your check will most likely come in April or May. COS has no control of when the check comes, but you can call the IRS directly to get an update.
Will the charge come out of my check?
No. COS will not see, or touch your check at all after we have filed for your ERC. Your check will come via MAIL, to the address you provide. COS offers payment plans for those that do not want to pay our total fee upfront.
Why is my ERC lower than expected?
The amount you qualify for is based on the income you have earned this year. So while the max a person can claim is $5,000, that isn’t the norm. The check also comes already taxed, so even if you qualify for the full $5,000, the number on the check will be closer to $3,600. There are additional credits that we will try to help you qualify for (sick time, parental leave, etc), but those are a case by case basis and cannot be guaranteed for each customer.
How do we know COS Accounting is credible?
COS has been around for 2 years now, and have been helping their clients claim the ERC since the credit was announced earlier this year. You can see COS as an IRS approved provider on the IRS website here.
Does COS have to do my taxes?
No they do not. However, by starting an LLC SCORP, you will have to do business taxes, including quarterlies due every 4 months. COS Accounting is happy to provide this service for you for $55 each quarter, especially because they have already done work with the ERC, so they have all your needed documentation, making the process easy as possible for you. If you would like to find another service provider, that works just fine!