“I thought, “No Way!?” Is this a prank? We’re getting back $116,323! The Fitness CPA was the only business that let us know that ERC was even available. It will help us tremendously, especially after the challenges we have faced over the past 14 months.”
Peter Blumert, Prevail Conditioning
The Employee Retention Credit is a refundable tax credit from the IRS against certain payroll taxes in 2020 and 2021. It’s essentially more stimulus for your business to help you navigate the consequences of COVID-19. You can read the nitty gritty details here.
And it’s actually not that new – it came out as part of the original CARES Act passed back in March 2020.
However, back in March 2020, businesses had the option to take the PPP funds OR take the Employee Retention Tax Credit (ERC). In virtually every case, it made much more sense for a business to take the PPP funds.
However, fast forward to 2021, and the rules have changed.
As of December 2020, the IRS made a change to the Employee Retention Credit program to say that you can now retroactively claim the ERC all the way back to March of 2020 AND claim it in combination with the PPP funds you’ve likely already received.
How great is that?
Even if you received PPP funding in 2020 or 2021, you are now eligible to receive the Employee Retention Credit (ERC) as well!
This means tens of thousands of dollars in additional funding for your fitness business right now.
The only stipulation to the change is that any payroll wages paid with the PPP funds are not eligible for the tax credit. So, you can imagine the calculations that go into deciphering between the two will take up quite a bit of room in Excel.
However, the results are worth it.
As mentioned, our clients have received an average $57,000 back in cash from the Employee Retention Credit already.
And they don’t have to pay it back. Unlike the Paycheck Protection Program, this is not a loan!
As long as you meet a few easy requirements, you are qualified to receive thousands back in cash.
If you’re a gym or fitness business owner reading this, we’re nearly certain that your business is eligible to receive thousands of dollars back from the IRS.
Because most gyms and fitness businesses fit the criteria of having reduced income and/or were forced to shut down at one point or another during COVID-19.
Let us explain.
In order to qualify for the Employee Retention Credit, businesses have to meet a few simple criteria.
Those are the easy ones.
Unfortunately, if your business is brand, brand new and you don’t have any employees, the ERC isn’t for you.
Now let’s tackle the remaining qualifiers. If ANY of the following points apply to your business, you qualify for ERC.
Did You Start a Business in 2020 or 2021? You May Qualify as a Recovery Startup Business For The Purposes of The Employee Retention Credit.
Written into law with the American Rescue Plan Act, new businesses that opened during the pandemic are now eligible to receive stimulus funding as a Recovery Startup Business.
A Recovery Startup Business for the purposes of the Employee Retention Credit is defined as a business that:
If this sounds like your business, you could be eligible to earn up to $100,000 in tax refunds from the IRS later this year.
As a Recovery Startup Business, here is what you need to qualify for the ERC:
If it sounds straightforward, that’s because it is.
There are essentially zero stipulations to qualify for the ERC under these new rules for new businesses, as long as you opened doors on or after 02/15/2020 and make less than $1M in revenue.
Read more about Recovery Startup Businesses over on our website here.
Ok, if the Employee Retention Credit is so great, why haven't I heard about it yet?
If you happen to know any accountants, you’ll know that change usually spells ‘headache’ when it comes to navigating new processes. It’s like changing the rules in the middle of playing a game, except the game now comes with new calculations, documentation, and retroactive tax return amendments.
This is why a lot of CPAs and accountants are steering clear of this area, and why you may not have heard about the Employee Retention Credit as of yet.
We wrote an entire blog post on why you may not have heard about it yet which you can read here.
But basically, navigating the ins and outs of the Employee Retention Credit is complex, especially if your business took advantage of the Paycheck Protection Program (PPP) in 2020.
And quite frankly, it’s a lot of work to go back and amend every tax return for 2020 and 2021 that you’ve already spent a lot of time submitting!
Many accountants simply don't have the time or resources to learn and master the Employee Retention Credit.
Rather than risk an audit due to inaccurate calculations, they simply stay away.
As alluded to, you're going to need to find an experienced CPA to calculate the Employee Retention Credit for you.
Getting the Employee Tax Retention right, in terms of doing it correctly while maximizing the amount of money you get back, is difficult for even the most experienced accountants.
It takes a lot of practice.
Your accountant will have to go back and amend every single tax return for 2020 and 2021, and finagle the numbers in the best way to retroactively claim the tax credit in combination with PPP for each quarter of 2020 and 2021.
If it sounds like a lot of work, that's because it is!
For the purpose of this guide, we're going to break down the calculations as simple as possible.
To simplify: businesses are eligible for up to $5,000 per employee for the entire year of 2020, and up to $28,000 per employee for 2021, if qualified.
Here are the details:
In fact, one of our clients is getting back $365,000.
The amount of tax credit you actually receive will take into consideration any PPP funds you took, the number of quarters you saw reduced revenue, and your specific city, county, and state regulations regarding COVID restrictions.
That's right! There is zero obligation to you. We'll calculate exactly how much you should receive back from the IRS at zero cost to you.
As we’ve spoken about, many CPAs aren’t familiar with ERC due to a number of factors, from fatigue to changing regulations.
However, here at The Fitness CPA, we’ve spent hundreds of hours investing in Employee Retention Credit in order to maximize the savings for all of our clients.
From those learnings, we've learned incredibly valuable tips and strategies to maximize the savings for gyms and fitness businesses.
Here are the 3 most valuable things you can do with your fitness business to maximize the money you get back from the Employee Retention Credit.
As we’ve spoken about previously, a 20% reduction in revenue, for any given quarter, will qualify your fitness business for the Employee Retention Credit in 2021.
And further to that, if your business qualifies for one quarter based upon revenues, you will automatically qualify your business for the subsequent quarter as well.
Pretty great, right?
In this case, we strongly recommend controlling your revenue numbers for just one quarter of the year. And if we had to pick, we would choose Q2 and as a backup Q3 2021.
We've explained more about this concept in detail, in this blog post here.
We've written a few more tips and tricks that you can use to maximize your ERC funding in our blog post here. We strongly recommend checking it out.