Wait, is this a refund or a credit?
Amongst the many questions that I regularly get asked about the employee retention tax credit (ERTC), is whether or not it is actually a credit or a refund. As with all things when it comes to the IRS, the answer is: it depends!
When it comes down to it, the IRS gives you 3 options for how you can take advantage of the ERTC.
- Stop paying payroll taxes
The most popular option by far is to request a refund. Essentially, you file all of your paperwork for the ERTC, provide all supporting evidence that shows you qualify, and you request that the IRS mail you a check.
Curious about how long it takes to get that check? Click here for details!
The appeal here should be obvious since everybody likes getting a check in the mail! The other advantage is that this option represents actual cash in the hand of business owners rather than something less tangible like we will get into next.
As an alternative to getting money in the mail, you could send the IRS less money by taking it in the form of a tax credit. The overall process remains the same you just defer your option to receive money now and choose to save it later.
The choice between a refund and a credit can often come down to liquidity. For a company that needs money immediately the refund is going to be much more appealing. If costs are seasonal and it would be more beneficial to send less money during tax season, then the credit is going to be a very attractive option.
Stop paying payroll taxes
The third, and least used option, is to stop paying your payroll taxes to lower expenses and account for those missed payments with expected tax credits from the ERTC. This method requires significantly more accounting as you have to document your qualification and figure out how much you should be getting to know how much to NOT pay.
The additional layer of complexity and accounting makes this the least used option. If a business were looking for a way to lower regular expenses. As with many financial decisions many factors will go into selecting the right option for each business.
Working through qualifications and figuring out how much you can get is hard enough, choosing how to get that money should be the easiest decision you make as a business owner. Reach out today and let us help you work through the hard parts so you can skip right to getting your money!
For a layman’s guide to the employee retention tax credit check out our roadmap below:
Have questions that aren’t answered in the article or video? Book time with Brad today by clicking here!