For small businesses in Texas seeking to harness the benefits of ERC, the spotlight is intensified as the IRS heightens its audit focus.
However, amid these challenges, there's a beacon of hope.
Our comprehensive ERC in Texas guide is here to guide you through the intricacies of ERC implementation in the Lone Star State, from eligibility criteria to auditing insights, scams prevention, and more.
If tailored expertise is what you seek, our dedicated ERC attorneys stand ready to guide you, especially in areas like ERC audits. Discover the ways we can empower your Texas business by exploring our services below.
Alternatively, keep reading to learn everything there is to know about the ERC in Texas...
What is the employee retention credit in Texas?
The Texas employee retention credit is a redeemable tax credit designed to bolster businesses navigating the impact of COVID-19 and retaining their workforce. It encompasses 70% of eligible wages disbursed to employees between March 13, 2020, and December 31, 2021, with a cap of $7,000 per employee per quarter.
The rest of this Texas guide will walk you through all-things Texas ERC, but you can also refer to our general what is ERC guide.
Does Texas conform to the employee retention credit?
Yes, Texas conforms to the employee retention, just as all US states do. The ERC is a federal credit with no deviation from state to state. As such, the same eligibility requirements, calculations and application process applies to Texas as it does nationally.
Eligibility for the ERC in Texas
Navigating the ERC in Texas hinges on eligibility criteria. Business proprietors in the Lone Star State, including tax-exempt entities, are eligible if they operated a trade or business during 2020 and encountered:
- Full or partial suspension of business operations in any calendar quarter due to government orders curtailing commerce, travel, or gatherings owing to COVID-19, or
- A substantial decline in gross receipts.
Comprehending business suspension is pretty straightforward, considering the challenges many faced. Unfortunately, some enterprises persist in financial limbo. For those operating at a loss, aggregating gross receipts is vital to align with employee retention credit prerequisites.
For a detailed exploration, consult our comprehensive resource on ERC qualifications.
Calculating the Texas ERC
Calculating the Texas ERC involves both simplicity and complexity. Precision is crucial, given the evolving ERC landscape from 2020 to 2021.
For the 2021 ERC calculation, businesses must meet these criteria:
- Overcome financial setbacks.
- Have under 500 employees.
- Identify qualifying wages.
- File returns on time.
ERC credits are capped at $10,000 per employee per quarter, with a 70% credit rate.
ERC in 2020: Similar principles apply, but with a 50% credit rate. Businesses with 100+ employees in 2020 don't qualify.
Applying for the Texas employee retention credit subtraction
When applying for the Texas employee retention credit subtraction, eligible employers within the Lone Star State will document their total qualified wages and related health insurance costs each quarter on their quarterly employment tax returns.
For most Texas employers, the ERC application process involves Form 941 and commences with the second quarter. The ERC credit offsets the employer’s share of social security tax, and any surplus is refundable through standard procedures.
The refund-ability provision of this legislation offers significant relief to Texas companies severely impacted by the challenges of COVID-19.
PPP & the Texas franchise employee retention credit
The Consolidated Appropriations Act introduced modifications to the original terms of PPP loans, a change that directly impacts Texas businesses.
A recent news release from the IRS now permits deductions for the payments of eligible expenses when such payments would result (or be expected to result) in the forgiveness of a loan (covered loan) under the Paycheck Protection Program ('PPP')
In line with these updates, the CARES Act's guidance underwent amendments, stating that no deduction is denied, no tax attribute is reduced, and no basis increase is denied by reason of the exclusion from gross income of the forgiveness of an eligible recipient’s covered loan.
Previous directives that prohibited deductions for eligible expense payments, potentially leading to loan forgiveness, are now obsolete in the Texas business landscape.
As a result, businesses in Texas can now simultaneously avail themselves of the Texas franchise employee retention credit and PPP benefits. However, it's crucial to tread carefully, as there are pitfalls to navigate when combining ERC and PPP incentives.
Nonprofits & the Texas franchise tax employee retention credit
The scope of the Texas franchise tax employee retention credit encompasses nonprofit organizations, including churches—mirroring their applicability to standard small businesses.
However, establishing eligibility and navigating the intricate regulations of the ERC for nonprofits can prove challenging within the Texas landscape.
Nonprofits must align with specific eligibility prerequisites. These include the government mandate test and the gross receipts test.
When it comes to nonprofits in Texas, claiming the employee retention credit involves filing Form 941-X and detailing the relevant amount on Form 990. The credit's value hinges on the extent of qualified wages and the number of employees.
Is the ERC taxable in Texas?
The ERC isn't directly taxable income in Texas, but it influences payroll deductions and taxable profits. Properly reporting it on forms like 1120-S and 1065 requires grasping the ERC-taxable income connection. Impact on tax returns depends on credit claims, payroll deductions, and business entity type.
Be sure to read our complete “is ERC taxable income” guide for everything you need to know.
Audits & the Texas treatment of the employee retention credit
When dealing with the Texas treatment of the employee retention credit, it's crucial to correctly claim the ERTC while adhering to IRS rules.
While ERC audits can occur, Texans can pre-emptively dodge them and be ready for potential audits by arming themselves with the following information:
- How to prevent an ERC audit in the first place.
- The statute of limitations for ERC audits.
- How to respond if notified of an audit.
Scams & the 2023 employee retention credit in Texas
In Texas, the rise of employee retention credit scams is a concerning trend, as scammers employ diverse tactics to deceive businesses and exploit the employee tax retention credit initiative.
The IRS has issued alerts regarding these schemes, placing an emphasis on tax adherence and prudence while engaging with third-party entities relating to the 2023 employee retention credit in Texas.
Although the ERC remains a legitimate refundable tax credit, vigilance against these prevalent scams is imperative:
- Identity Theft: Criminals target ineligible businesses in Texas, procuring sensitive data to deceitfully apply for the credit using stolen identities.
- Collections: Fraudsters file unauthorized ERC claims and siphon a significant portion of the credit for their own gain.
- Phone Calls: Scammers initiate phone conversations, making false claims about ERC eligibility. They may sidestep government criteria and demand exorbitant fees for unnecessary services, even if the business qualifies.
To avert ERC scams, Texan businesses should collaborate with reputable tax experts (like the Brotman Law team), validate eligibility, engage directly with advisors, grasp ERC prerequisites, and exercise caution towards unsolicited guidance or implausible assurances.
These precautions serve as safeguards against fraud, ensuring adherence, and shielding businesses from succumbing to fraudulent schemes.
How Brotman Law can help with the TX ERC
Navigating the complexities of the TX ERC can be daunting.
Our seasoned ERC tax attorney team at Brotman Law is well-versed in ERC intricacies and is here to provide expert guidance tailored to the Texan business landscape.
Whether you're uncertain about eligibility, seeking to optimize credit benefits, or safeguarding against potential scams, our dedicated team stands ready to support you.
Contact us today to ensure your Texas business maximizes its ERC potential and remains compliant with state-specific regulations. Your ERC journey is our priority.
Final points on the ERC in TX
In the state of Texas, it's undeniable that the ERTC credit offers substantial financial relief to COVID-19-impacted businesses, spanning traditional enterprises and nonprofits alike.
However, navigating eligibility for the ERC in TX and qualified wages entails complexity, subject to variations based on employer size.
For robust protection, we strongly advise engaging with a tax professional (such as our team at Brotman Law) to ascertain eligibility, optimize credit utilization, and shield against potential scam threats. Your safeguarded ERTC journey in Texas starts with expert guidance.
The US states we support through the ERC