COS Accounting is a firm based in Provo, Utah, and they recently reached out to us to let us know about the Employee Retention Credit, which was a part of the COVID relief package. Any 1099 worker is eligible for this $5,000 credit.
And be sure to stick around to the end because I’ll let you know the amount that my wife and I are personally going to receive that left our heads spinning.
Want to claim the credit? See our post at The Rideshare Guy to get connected with COS Accounting. Take a look at our video on how to claim the ERC, and scroll to read the video transcript.
What is the Employee Retention Credit (ERC)?
The Employee Retention Credit is a tax credit designed for small businesses to help them recover from the impacts of COVID-19 on their business, and the ERC is not alone. It’s a tax credit, so it never has to be repaid.
Now, the next question, how much can you claim with the ERC? The ERC pays out 50% of an employee’s income up to $5,000. Say you made $8,000 this year. You can claim $4,000 for the ERC, but if you’ve made $16,000, you can claim only $5,000 because that’s the highest that will pay out, even though it’s less than half of your income.
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The ERC has paid out per employee. So for those of you that have a spouse and children, there are additional credits that can increase the refund amount if certain criteria are met, and we’ll explain this more later.
How Can You Claim the ERC?
The first thing you need to do is set up a limited liability corporation (LLC). The ERC is designed for small business owners. So by setting up an LLC, you now run your own small business. You can then count all of your 1099 earnings, driving, delivery or any other side gig or 1099 work as earnings towards your business.
Once you set up your own LLC, the process is easy. COS Accounting has a team that walks you through the qualification process, will set up the LLC, file your forms for you, and can give you an estimate on the phone of how much money you can claim. COS knows the ERC inside and out, and we’ll make sure to help you claim as much as you can. COS has already helped over 1,000 people claim this credit so they know what they’re doing.
If you’d like to just claim the ERC credit on your own, you’ll still need to set up an LLC, go through the processes, pay the fees, and processes fees and taxes vary by state. You’ll have to track and detail your income for the year. File your Q4 taxes for your business and file, sign, and attach a 941 form. And once you send that to the IRS, they may take a few weeks to process and get back to you regarding errors that you will need to fix.
You can go about the do it yourself approach. You can create your LLC and file for the ERC on your own, but we don’t recommend doing this since the credit’s going to expire on December 31st. You want to make sure that when you’re creating the LLC, that you have no errors and you can get your paperwork back as soon as possible. We have a feeling that this credit could become really popular and tougher to get if more people find out about it.
How Can You Tell if You Qualify for the ERC?
The IRS will be looking for key factors to make sure you qualify for the ERC.
One, was your job impacted by COVID? This can include local government restrictions, earning less this year than last year, or disrupted operations.
Two, how many weeks worth of unemployment you took? Taking unemployment does not automatically disqualify you from receiving the tax credit, but it can impact you.
Three, did you receive the Paycheck Protection Program, the PPP loan? Unless you’ve already set up an LLC, this won’t be anything to worry about, but if you have set up an LLC and you qualify for the PPP, you’ll be disqualified from the ERC.
And the final factor is how much you’ve made this year? As we talked about earlier, this credit will pay out up to $5,000 if you have made $10,000 or more. So you’ll want to keep track of all the 1099 income that you’ve made this year.
Let’s say you go through this process, you set up your LLC and you apply for the ERC. How long will it take to get the money to get that credit back? This is the worst part. It does take a long time. It can take up to 14 weeks to get that check in the mail, but you will receive it.
COS Accounting Helped Me Claim a Lot of Money
We do recommend you use COS Accounting for the entire process. The next question is how much do they charge? So for the ERC process, the rates range from $500 to $2,500, depending on each situation. According to COS, the majority of clients will fall into the $500 to $1,000 range. And if you’re a single driver who has made $10,000 or more and the process is fairly simple, their rate would be $500 from the $5,000 that you earned.
You’ll also need to pay the cost of the LLC setup, which varies by state. In Utah, for example, it’s $300 and your quarter four taxes, which in my case is $55, the cost of filing our quarterly taxes. And the credit will come pre-taxed. The check you will receive will be for about $3,500. So after COS’s fee and taxes, you’ll get $3,000 of free money. And again, the ERC is set to expire on December 31st. So if you are interested in claiming these funds, fill out their qualifier form, which you can find a link to in this post.
My Experience with COS Accounting
I personally went through this process with COS about two weeks ago. I filled out the qualifier form on a Sunday and they contacted me the Monday after. The initial conversation lasted about 30 minutes and they were able to determine that my wife and I, she’s also an independent contractor, would qualify for a $10,000 credit.
But my wife and my particular situation, it gets even better. During the call, I also mentioned that we have two daughters and that qualified us for an additional $6,000 plus an additional $3,000 to pay taxes. Our total credit came to $19,000.
Our heads were spinning. After taxes and COS’s fees, we’re going to come out ahead about $13,300. And during the call, we also determined that it would make most sense for my wife and I to set up a joint LLC as an S corporation. And we let COS handle everything from the creation of the LLC as an S corp to filing for the ERC. Again, they know exactly what they’re doing when filing LLC paperwork.
After they filed, our LLC was approved two days later. And then the following business day, they submitted the ERC paperwork, and now it’s just the waiting game for us to receive that check in the mail. The process was completely painless. COS did all the heavy lifting. I cannot recommend them enough.
Let’s quickly go over some frequently asked questions.
How many weeks of collecting unemployment would disqualify someone from the ERC? If you have collected more than four weeks of unemployment in this fourth fiscal quarter, which is October 1st to December 31st, you would be disqualified. And if you collected anywhere from one to four weeks, it would be based on a case by case basis.
As far as drivers in California, you will qualify for this credit, but there’s an additional annual franchise fee of $800 for LLCs that must be paid every year. So in order to qualify for the credit, you would need to pay this additional tax plus the cost of set up an LLC in California. So it’s definitely still worth it, but your credit will be less because of this fee. And it’s important to note that if you want to get rid of your LLC in the future, you can’t just stop paying the fee. You need to cancel it with the state of California.
What does an LLC provide? LLC stands for limited liability corporation in the context of a driver or gig worker, its main benefit is liability protection, since taxes for LLCs are treated as passed through to your personal taxes. There’s no tax benefit of setting up an LLC, but you could receive liability protection if a passenger were to sue you.
What is an LLC as an S corporation? The biggest benefit of registering your LLC as an S corporation is the tax savings. All of your earnings flow through your entity rather than the individual.
What about risks or potential downsides? If you’re worried about this fund running out of money, don’t be, it’s very unlikely. Also, hundreds of clients of COS Accounting have already received their money. So there’s no catch to this. If you do file as an LLC, you’ll have to file quarterly taxes, but you can cancel your LLC once you get the cheque if you no longer are operating the business anymore.
Overall, my wife and I personally with two daughters, are going to end up ahead about $13,000, which is absolutely incredible. And for all of you, I really recommend giving this a try. It’s $5,000 that’s just sitting out there waiting to be claimed. And again, the process of COS all starts with the qualifier form, which you can find a link to in this post.
Thanks again for watching and reading.
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