In the wake of the global pandemic, businesses across Michigan have faced unprecedented challenges.
Enter the employee Retention credit (ERC) — a beacon of hope in these testing times.
This financial relief mechanism is not just a silver lining, but a golden opportunity for Michigan businesses to regain their footing and forge ahead.
Whether you're already familiar with this tax credit or are hearing about it for the first time, this comprehensive employee retention credit Michigan guide will serve as your roadmap to understanding and leveraging this tax credit.
Should you require immediate assistance, refer to our ERC attorneys page and find out what our tax attorneys can do for you.
But if you're ready to dive in, this guide should tell you everything you need to know about the ins and outs of the ERC in Michigan.
What is the Michigan tax credit for 2023?
The Michigan employee retention tax credit for 2023 is a refundable tax credit extended to small and medium-sized businesses following the economic turmoil caused by the COVID-19 pandemic. Its sole purpose is to encourage businesses to retain their workforce and foster economic recovery throughout the state.
To expand on the “what is ERC” query, which we get a lot, the ERC covers 70% of the qualified wages a business pays to its employees. This provision is applicable for wages paid out from March 13, 2020, all the way through to December 31, 2021.
Keep in mind, however, there's a limit on the credit amount — it's capped at $7,000 per employee for each quarter within this timeframe.
Eligibility for the Michigan ERC
The ERC in Michigan requires a thorough understanding of the eligibility criteria. These criteria apply to both taxable and tax-exempt organizations that were operational during 2020.
Impact on business operations
Were you forced to reduce or suspend your activities due to governmental orders linked to the pandemic? If so, this could potentially make you eligible for the ERC.
Did you experience a substantial drop in gross receipts? For businesses that recorded losses, determining ERC eligibility will involve a careful analysis of your gross receipts.
Keep in mind that a minor slump in your business operations does not fit this context. The decline in both business operations and gross receipts must be substantial enough to have affected your ability to pay wages and keep the business running.
Given the nuances involved in interpreting these conditions, it's always a good idea to seek professional advice on the matter. Our tax attorneys at Brotman Law can help you accurately assess your ERC qualifications.
ERC Michigan calculation
The process of calculating the ERC may seem simple at a glance, but it’s actually quite complex. Navigating this process demands accuracy, especially in light of the changes that have occurred in the ERC framework from 2020 to 2021.
In the calculation of ERC, various elements demand attention:
- Financial resilience: ERC eligibility kicks off with your business showing its mettle and resourcefulness in overcoming financial hurdles.
- Business Scale: The ERC is only for small to medium-sized businesses. To be eligible, your organization must have less than 500 employees.
- Eligible Wages: It's not the total wage expense that matters, but rather, identifying how much of those wages conform to the ERC guidelines.
- Punctual Tax Filings: Delayed tax returns can put your ERC eligibility at stake.
The bright side? Well, the value of the MI ERC in 2021 is quite significant!
With a maximum limit of $10,000 per employee per quarter and a credit rate of 70%, you could potentially rake in up to $7,000 per employee per quarter — a huge lifeline for many enterprises in the Great Lakes State.
And what about the ERC calculations for 2020?
Well, the same calculation still applies, but with a few key distinctions. For one thing, the credit rate is dialed down to 50%, and eligibility is limited to businesses employing fewer than 100 people.
Simply put, describing the ERC criteria as a minefield is a bit of an understatement. Even the most subtle variations that can drastically alter eligibility and credit amount. Therefore, we highly recommend checking out our complete guide on the ERC calculation.
Applying for the ERC in MI
Now for the most crucial stage — processing your application for the ERC in MI!
You kick off this process by meticulously recording your total qualified wages and associated health insurance costs for each quarter. These figures should mirror your quarterly employment tax returns, and set the stage for exactly how much credit your business is eligible for.
As for the paperwork, you’ll need to familiarize yourself with Form 941. Starting from the second quarter, this form becomes your main companion and key to unlocking your eligibility for ERC MI.
When entering Form 941 into the system, make sure that you accurately report all qualified wages and associated health insurance costs for each quarter.
One thing that business owners should know about the ERC process is that it isn't just about credit; it's also about easing your tax burden. You can use it to offset your share of social security taxes.
This means that for every employee who meets the eligibility criteria, you can reduce your social security tax liability by that employee's full credit amount.
But what happens if your credit amount overshadows your social security tax?
Well this is where the refundability provision comes into play. If your credit exceeds your social security tax, the surplus won't vanish; instead, it's refundable through standard procedures. This ensures you get the full benefit of the ERC, irrespective of your social security tax obligations.
Of course, these are just the basics, and we encourage our readers to delve deeper into the matter.
Our comprehensive resource on ERC application is the best place to start. There, you'll find step-by-step instructions along with insights and actionable tips that will help you navigate the process with confidence.
PPP & the Michigan employee retention credit
The IRS has stated that it now allows for deductions on tax payments for eligible expenses — the type that could lead to the forgiveness of Paycheck Protection Program (PPP) loans. This is one of the new developments brought about by the Consolidated Appropriations.
Parallel to this, the CARES Act has softened its stance on loan forgiveness, introducing a series of notable amendments. These include policies for non-refusal of eligible deductions and basis increase as well stopping reductions in tax attributes.
So, it's now possible to simultaneously harness the benefits of the Michigan employee retention credit and PPP! But while this dual advantage may seem compelling, we strongly advise against rushing into it. The fusion of ERC and PPP comes with its unique set of challenges that require careful consideration.
To successfully navigate these challenges, it's crucial to have accurate and up-to-date information at your disposal. That's exactly what our ERC PPP guide offers.
Nonprofits & the employee retention credit in Michigan
The ERC doesn't just cater to businesses, but also to nonprofits as well. However, this ambit does come with its own set of complexities.
For one thing, a nonprofit must pass the same two tests that regular businesses do — the government mandate test and gross receipts test.
As you’ve seen, the process of claiming ERC is anything but a cakewalk, even for a nonprofit organization. Diligent applications require:
- Attention to detail, and
- Diligent record-keeping
The paper trail for all that starts with the correct filing of Form 941-X for the given quarter. This tax document should mirror the qualifying amount stipulated on a nonprofit’s Form 990.
For more information on this matter, we recommend checking out our comprehensive ERC for nonprofits guide.
Is the ERC taxable in Michigan?
No, the ERC isn’t taxable in Michigan, but it does have some bearing on payroll deductions and taxable profits, which businesses shouldn't overlook. The reason why this dynamic is so important is because the ERC affects accurate reporting on tax forms like the 1065 and the 1120-S, among others.
For example, businesses should remember that the amount of money received from the ERC isn't taxable because the IRS considers these funds a credit, not income.
This means employers must subtract the amount of credit received from their net income before calculating taxable profits.
The same goes for payroll deductions — businesses must remember to reduce the amount of payroll taxes withheld accordingly if they've previously paid via the ERC.
For entities looking to take advantage of the ERC, it’s important to understand the connection between taxable income and the ERC tax credit. After all, proper reporting of an employee’s wages is essential for any business looking to remain compliant with the IRS.
For a better understanding on this matter, we highly recommend checking out our is ERC taxable income guide.
Audits and the Michigan treatment of the employee retention credit
One frustrating aspect of the Michigan treatment of the employee retention credit is that even after you receive the credit, there’s still a risk of an unwanted ERC audit.
Nobody wants that, right?
But with proper preparation, you not only minimize the chances of an audit, but also become well-equipped to handle one if it ever comes knocking.
More specifically, understanding the timeline the IRS has to conduct an audit (known as the “statute of limitations” can give you a better grasp of the situation.
Of course, steering clear of an audit comes down to understanding the ins and outs of claiming the ERC and making sure you follow every single IRS rule to the letter. After all, prevention is always the best solution to any problem.
Scams to be aware of
While the ERC is a legitimate refundable tax credit, it hasn’t escaped the attention of scammers looking to take advantage of business owners in vulnerable situations.
The IRS hasn't been idle and put out warnings to these scams; it's up to business owners to remain vigilant and educate themselves about employee retention credit scams.
For one thing, the IRS will never ask you to pay anything upfront to process your ERC. It goes without saying that the IRS will never ask for your financial information, either, outside of the official ERC application process.
Another thing to look out for are callers posing as "experts” offering to assist you in claiming your ERC benefits and promising amounts that seem too good to be true. Legitimate tax attorneys don't operate like this, so if you find yourself in this situation it's best to hang up immediately.
To protect yourself from ERC scams (or any other tax-related scams), a good rule of thumb is to be wary of any unsolicited communication that has to do with money and never provide personal information to unverified third parties.
If in doubt, always refer to the IRS website or contact a professional tax attorney for guidance.
How Brotman Law can help
The ERTC can feel like a dense jungle of rules and regulations. It's easy to get lost, but you don't have to explore alone!
Here at Brotman Law, we're more than just an ERC tax attorney firm — we understand how important it is for businesses to be informed and compliant with this new tax credit.
That's why we've dedicated ourselves to helping you navigate the complexities of the ERC so you can get back to doing what you do best: running your business.
Reach out to us today and let's transform the complicated ERC process into a seamless experience.
Final points on the Michigan tax treatment of the employee retention credit
In the wake of COVID-19, Michigan's small and medium-sized businesses have been offered a lifeline through the employee retention tax credit, encouraging businesses to retain their workforce during challenging times.
However, understanding the Michigan tax treatment of the employee retention credit is key to optimizing its benefits, considering the complex eligibility criteria and calculation process.
In a world fraught with uncertainty, our expert team stands as an authoritative, empathetic ally, committed to helping Michigan businesses navigate the ERC landscape effectively.
The US states we support through the ERC