For businesses impacted by COVID-19, a silver lining exists in the form of the ERC in Wisconsin. Designed to provide financial relief, the employee retention credit offers a massive financial relief for businesses owners looking to keep their venture going, even after the global pandemic.
But… if you’re just looking for guidance from our ERC attorneys, particularly if you need ERC audit help, check out our services by hitting the button below to see how we can help you.
Alternatively, read on to get an overview of all that the credit entails...
What is the ERC in Wisconsin?
The ERC in Wisconsin is a monetary relief measure designed to aid businesses that have been financially impacted by the COVID-19 pandemic. This refundable tax credit serves as an incentive for businesses to retain their employees and keep their operations going during these challenging times.
So, for anyone wanting an answer to "what is the ERC", here’s how it works — the ERC equals 70% of qualified wages paid to employees. This applies to wages paid from March 13, 2020, through December 31, 2021. The maximum credit amount is capped at $7,000 per employee per quarter.
Eligibility for the Wisconsin ERC
To qualify for the ERC in Wisconsin, there are key eligibility considerations that employers must meet. This includes both taxable businesses and tax-exempt organizations who operated during the calendar year 2020.
Here's a short summary of the ERC qualifications:
- Operational Suspension or Reduction: This condition applies if your trade or business was compelled to limit its operations during any calendar quarter due to COVID-19 related governmental orders.
- Decline in Gross Receipts: The second condition pertains to experiencing a significant decline in gross receipts. Businesses that operated at a loss will need to calculate their gross receipts to ascertain if they meet the ERC eligibility requirements.
It's worth noting that “significant” is not a term to be taken lightly here. Therefore, businesses should consult with a tax attorney (such as the team here at Brotman Law) to ensure they have correctly assessed their situation.
Calculating the ERC Wisconsin subtraction
The ERC Wisconsin subtraction calculation is a bit of a paradox — it's both simple and complex. The key to navigating this duality lies in precision, especially considering how the ERC landscape has evolved from 2020 to 2021.
When you're calculating the ERC for 2021, several considerations come into play:
- Actively Solving Financial Setbacks: As a relief measure, ERC eligibility begins with your business demonstrating resilience in facing financial challenges.
- Business Size: ERC supports small to medium-sized businesses. To qualify, you should employ fewer than 500 people.
- Qualifying Wages: Identifying wages that qualify for the credit is crucial. It's not about total wages paid, but about the ones that meet ERC criteria.
- No late tax returns: Late filings can risk your ERC eligibility. Ensure all tax affairs are current.
The good news is that the ERC for 2021 is quite generous. It's capped at $10,000 per employee per quarter, with a credit rate of 70%. That means you could potentially receive up to $7,000 per employee per quarter, which is a massive financial relief for many businesses.
But what about ERC in 2020? Well, the principles for calculating the ERC remain largely the same, but there are some key differences. The credit rate for 2020 is lower, standing at 50%. Plus, the ERC in 2020 was not accessible for businesses with more than 100 employees.
As you can see, while the ERC criteria may seem straightforward, even slight variations can significantly impact eligibility and credit amount.
Therefore, it's crucial to understand these nuances and apply them correctly to your specific business situation. You can start by checking out our detailed guide on the ERC calculation.
Applying for the ERC Wisconsin grant
An ERC application starts with documenting your total qualified wages and associated health insurance costs for each quarter. This is done on your quarterly employment tax returns and is a crucial stage as it serves as the bedrock of your application and determines the credit you're eligible for.
Now, onto the paperwork — most businesses in Wisconsin will find their ERC application process intertwined with Form 941. This form becomes relevant from the second quarter onwards and will be the main document you need to be considered for the ERC Wisconsin grant.
The next step is to tackle your social security tax. One of the best things about ERC credit is that it can be used to offset the employer’s share of social security taxes. But what if your credit is more than the social security tax you owe?
This brings us to the refund-ability provision. If your credit surpasses your social security tax, don't worry. The surplus doesn't go to waste. Instead, it's refundable through standard procedures. This means you benefit from the full amount of the ERC, regardless of your social security tax burden.
PPP & the Wisconsin employee retention credit
The Consolidated Appropriations Act has redefined the landscape of the Paycheck Protection Program (PPP) loans, bringing about changes that business owners need to be aware of.
For one , the IRS has stated that they now accept deductions on tax payments for eligible expenses. These are the payments that are likely to result in the forgiveness of a PPP loan. This shift in approach opens new avenues for businesses seeking financial relief.
Similarly, the CARES Act began adopting a more flexible approach towards loan forgiveness. Some of the most noteworthy amendments include the following:
- No reduction of tax attributes
- No denial of eligible deductions
- No denial of basis increase (for claims resulting from the exclusion of gross income following the forgiveness of an eligible applicant’s loan).
The above changes mark a departure from earlier directives that disallowed deductions for eligible expense payments, which could potentially lead to loan forgiveness. These directives no longer apply today.
And so, business owners can now concurrently leverage the advantages of the Wisconsin employee retention credit and PPP benefits.
However, while this dual benefit seems appealing, we advise business owners to proceed with caution. Combining ERC and PPP incentives has its own set of complexities that business owners must carefully navigate.
You can get all the information you need on this matter from our ERC PPP guide.
Nonprofits & the ERC Wisconsin program
The ERC Wisconsin program extends beyond traditional small businesses, encompassing nonprofit organizations and churches.
With that said, nonprofits must navigate through complex regulations in order to qualify for ERC. For one thing, nonprofits must pass both of the following tests to be considered:
- Gross receipts test: An investigation on whether or not there has been a significant decline in the organization's gross receipts
- Government mandate test: Assesses the full impact of government orders on a nonprofit’s operation
As you can see, claiming the ERC is far from simple among nonprofits.It demands careful attention to detail and meticulous record-keeping. The process starts with filing Form 941-X to cite the qualifying amount indicated on a nonprofit’s Form 990 (a form that tax-exempt organizations are required to file annually).
Ultimately, the value of the ERC for nonprofits will depend on two things — the total qualified wages paid and the number of employees. Accurate records and documentation play a vital role in substantiating your claim.
Is the ERC taxable in Wisconsin?
No, the ERC is not directly considered as taxable income in Wisconsin. However, it does play a significant role in shaping payroll deductions and taxable profits. Understanding this dynamic is crucial to accurately report it on other relevant tax forms, such as 1120-S and 1065.
The way ERC affects your tax returns hinges on several factors. These include the amount of credit claims made, applicable payroll deductions, and the type of business entity you operate.
You can learn more about how each of these variables affect your taxable income in our is ERC taxable income guide.
Audits and the employee retention credit in WI
Yet another challenge that business owners must navigate when claiming the Employee Retention Tax credit in WI is adherence to IRS regulations.
After all, the last thing a business needs after struggling through a global pandemic is an ERC audit.
Yes, ERC audits can indeed happen, but with enough preparation, you not only mitigate the chances of an audit but will also be well-prepared if one occurs.
For one thing, many business owners are not aware that ERC audits are bound by a statute of limitations. Knowing this timeline can help you understand the legal timeframe within which the IRS can initiate an audit following your ERC claim.
So, how can you deter an ERC audit? Well, the answer lies in understanding the nuances of claiming the ERTC and following IRS rules to the letter. Prevention, after all, is the first line of defense.
Scams to be aware of
A series of scams related to the ERC deploy an array of deceptive tactics to exploit businesses and take advantage of their situation. Of course, the IRS has not been silent on this issue. They've released advisories warning business owners about the dangers of employee retention credit scams.
While the ERC is a legitimate refundable tax credit, this fact doesn't negate the need for vigilance, which can be perpetrated in a number of ways:
- Collections Fraud: Scammers offering to file your ERC claims, only to drain most (if not all) of the credit.
- Phone Scams: Scammers call business owners and make false assertions about ERC eligibility. They then fabricate and charge their victims with hefty fees or ask for sensitive information that they can use to obtain more ill-gotten gains.
- Identity Theft: Pretending to assist business owners in their ERC applications with the goal of applying for credit using stolen identities.
So, how can we thwart these ERC scams? Businesses can adopt the following preventative measures:
- Only deal with trustworthy tax experts, such as our Brotman Law team.
- Verify your own eligibility for the ERC.
- Gain a solid grasp of the ERC prerequisites.
- Exercise discernment when confronted with unsolicited advice or seemingly implausible guarantees.
These measures act as your shield against fraud, promoting adherence to tax laws, and safeguarding businesses from falling prey to these fraudulent schemes.
How Brotman Law can help
For many businesses, the intricacies of the ERC can often feel like a maze. However, you don't have to go at it alone.
At Brotman Law, our team of seasoned attorneys stand ready to help business owners navigate the complexities of the ERC. Our experience with tax law, corporate governance, dispute resolution, and general legal counsel makes us uniquely qualified to handle all aspects of the ERC process.
Whether you have questions about your business' eligibility or wish to fully leverage your ERC benefit, let our ERC tax attorney team be your guide!
The ERC, designed to provide financial aid to businesses impacted by COVID-19, holds significant potential. Yet, unlocking this benefit requires a keen understanding of its nuances and the ability to effectively work within the framework of state regulations.
Regardless, qualifying for ERC need not be an insurmountable task for your business.
With the right guidance, it's possible to navigate these complexities and maximize your business's ERC potential while remaining compliant with Wisconsin-specific regulations.
The US states we support through the ERC