Employers Should Be Wary of ERC Claims That Are Too Good to Be True
- Find information defining the ERC (Employee Retention Credit).
- Discover eligibility requirements for the ERC
- Learn about ERC “mills” and their false promises.
- Find out what to do if you filed improperly.
- Learn about the repercussions of improper filings.
The Employee Retention Credit (ERC) was a valuable tax credit that helped employers that kept workers on staff during the height of the COVID-19 pandemic. While the credit is no longer available, eligible employers that haven’t yet claimed it might still be able to. To do this, they must file amended payroll returns for tax years 2020 and 2021.
Beware of Tax Savings Too Good to Be True
However, the IRS is warning employers to beware of third parties advising them to claim the ERC when they don’t qualify. Some third-party “ERC mills” are promising that they can get businesses a refund without knowing anything about the employers’ situations. They’re sending emails, letters, and voice mails as well as advertising on television. When businesses respond, these ERC mills are claiming many improper write-offs related to taxpayer eligibility for — and computation of — the credit.
These third parties often charge large upfront fees or a fee that’s contingent on the amount of the refund. They may not inform taxpayers that wage deductions claimed on the companies’ federal income tax returns must be reduced by the amount of the credit.
Did your business file an income tax return deducting qualified wages before it filed an employment tax return claiming the credit? According to the IRS, the business should file an amended income tax return to correct any overstated wage deduction. Your tax advisor can assist with this.
Businesses are encouraged to be cautious of advertised schemes and direct solicitations promising tax savings too good to be true. Taxpayers hold ultimate responsibility for the information reported on their tax returns. If taxpayers improperly claim the ERC, they may have to repay the credit as well as penalties and interest.
ERC Basics
The ERC is a refundable tax credit designed for businesses that:
- Continued paying employees while shut down due to the COVID-19 pandemic, or
- Had significant declines in gross receipts from March 13, 2020, to September 30, 2021 (or December 31, 2021, for certain startup businesses).
Eligible taxpayers could have claimed the ERC on an original employment tax return. They can also claim it on an amended return.
To be eligible for the ERC, employers must have:
- Sustained a full or partial suspension of operations due to orders from an appropriate governmental authority limiting commerce, travel, or group meetings due to COVID-19 during 2020 or the first three quarters of 2021,
- Experienced a significant decline in gross receipts during 2020 or a decline in gross receipts during the first three quarters of 2021, or
- Qualified as a recovery startup business for the third or fourth quarters of 2021.
As a reminder, only recovery startup businesses are eligible for the ERC in the fourth quarter of 2021. Additionally, for any quarter, eligible employers cannot claim the ERC on wages reported as payroll costs in obtaining Paycheck Protection Program (PPP) loan forgiveness. They also cannot claim ERC on wages used to claim certain other tax credits.
How to Proceed
Do you believe you’re eligible but didn’t claim the ERC? Call Fiducial at 1-866-FIDUCIAL or make an appointment at one of our office locations to discuss your situation. We can advise you on how to proceed.
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