The Employee Retention Tax Credit (ERTC) was created to reward employers for retaining employees during the pandemic crisis, even when their businesses faced financial strain. This tax credit must be claimed before the June 30, 2021 filing deadline, and many taxpayers are realizing significant benefits.
Engineered Tax Services and its cohort Rockerbox are experts in identifying and claiming federal tax credits; and with their due diligence and tax knowledge, Rockerbox was able to obtain a restaurant owner in New Jersey over $618,000 in ERTC tax savings, while maximizing the value of both the ERTC and Personal Payroll Protection (PPP) loan programs for the client.
Here’s how it started: ETS Executive Vice President Heidi Henderson was contacted by a CPA client of over 10 years; who has a client that owns a multilocation restaurant business in the Northeast. The CPA firm, being an advisory-focused group, identified the potential benefit for its client and shared the client’s payroll files with Rockerbox.
“With ERTC, the first thing we do is prove the employer is eligible,” said Philip M. Wentworth, Jr., co-founder and CEO of Rockerbox. “You have to have less than 100 FTE [full-time equivalent] employees. We requested a 2019 1094-C from the client; it shows the IRS they’re compliant with Affordable Care Act and they’ve offered employees healthcare coverage. When we asked the CPA firm to confirm the employee listing, it turns out the client sent over the wrong year, 2018, not 2019!
“When they sent over their real 2019 1094-C, we saw immediately they had several hundred employees. Our hearts sank. It looked like they didn’t qualify. Then we figured these all couldn’t be full-time employees, so we asked how many hours each employee worked. We have a magical template that can do amazing things with databases. Our processors did the work, and they whittled down the part-timers from the list until we saw there were only 87 FTE employees! So the client qualified. We had the CPA firm redo the 1094-C form, and the client ended up with a $618,000 tax credit.”
Heidi Henderson pointed out: “Without that due diligence, that employer would not have had access to $618,000 in credits.”
But that’s not all we did for the client. In the wake of the pandemic, ERTCs and the Paycheck Protection Program (PPP) came out at the same time. Originally, if you got a PPP loan, you couldn’t claim ERTCs. But under the new law, employers who received PPP loans can claim employee retention credit for qualified wages not treated as payroll costs to obtain forgiveness of their PPP loan.
As it turns out, the client had received a PPP loan, but hadn’t filed for forgiveness.
“We applied the funds from the PPP loan to the client’s high-wage earners,” Wentworth said. “We maximized both programs. It could not be a better day for ETS and Rockerbox.”
He added: “Our fees are unique and 100% success-based, so we’re motivated to deliver. If we were being paid a fee, we would have walked away from this engagement, because the initial size of the employee list would have been a red flag; but since our fee is linked to our performance, we had an incentive to clean up the PDF employee list and uncover real value for the client.”
Additionally, this client’s payroll company had assumed they didn’t qualify, due to the number of employees, and the payroll company doesn’t investigate PPP status and ERTCs; it only uses an algorithm. “The payroll company would have left a lot of tax credits on the table,” Wentworth remarked.
Wentworth has calculated that as a result of the ERTC tax credits, the client’s cash flow will increase by 10-15%. “And with a higher cash flow, the client’s bottom line will improve, and their valuation will go up too,” he said.
“In my work, it’s wonderful to hear small business owners talk about their business and tell their story,” Wentworth said. “I’ve been fielding calls from prospects since 6:30 this morning—and I’m not complaining! It’s great thing to help small businesses thrive in America, especially in the wake of the pandemic.”
Please contact Engineered Tax Services for more information on qualifying for the Employee Retention credit or other possible incentives to optimize your income tax structure.