Why ERC Estimates May Differ from Reality
Businesses may sometimes find a discrepancy between the initial Employee Retention Credit (ERC) they estimate and the value they eventually qualify for. Factors attributing to this can vary. Primarily, when businesses receive an estimate, it reveals an '*UP TO' amount. However, this doesn't ascertain the exact amount a business would qualify for. Moreover, the estimate process might not take into account any Paycheck Protection Program (PPP) loans, which can significantly affect the final ERC sum.
Fluctuations in Employee Numbers Impact Estimates
The first key factor influencing the estimation error revolves around changing employee headcounts throughout the year. If a business hires or lets go of employees later into the year, these changes can affect the yearly average used to calculate the ERC. While the initial estimates might include the full yearly wages for these employees, the final analysis, which is more precise, may not.
Wages Paid to Employees Affect the Final Calculations
Another aspect impacting the final ERC amount focuses on the wages businesses pay their employees. To qualify for the full ERC amount, businesses need to pay their employees a certain minimum wage. If the actual payroll costs fall short of those values, then the actual ERC received could end up being less than the initial '*UP TO' estimate. This payroll cost factor often gets overlooked, causing businesses to anticipate a larger ERC than what they might actually receive.