During the peak of the COVID-19 pandemic, the Employee Retention Benefit (ERC) aided employers who retained employees on staff. Even if the credit is no longer offered, qualified employers who haven’t yet claimed it may still be able to do so by filing revised payroll returns for the tax years 2020 and 2021.
However, the IRS is cautioning businesses to be wary of outside parties who might be advising them to submit an ERC claim even when they are ineligible. Some third-party “ERC mills” make refund promises to businesses without having any knowledge of the employers’ circumstances. They advertise on television and send emails, letters, and voicemails. These ERC mills are making numerous erroneous write-offs related to taxpayer eligibility for — and computation of — the credit.
These third companies frequently charge hefty up-front costs or a fee that depends on the size of the refund. They are not informing taxpayers that the amount of the credit must be deducted from any wage deductions listed on the companies’ federal income tax returns.
The IRS advises businesses to file an amended income tax return to adjust any inflated wage deductions if they deducted eligible wages on their income tax return before filing an employment tax return claiming the credit. Your tax advisor can assist with this.
Businesses are advised to exercise caution when responding to direct solicitations and advertising schemes that claim to offer substantial tax savings. Providing accurate information on tax returns is always the responsibility of the taxpayer. Taxpayers who incorrectly claim the ERC may be asked to pay back the credit as well as penalties and interest.
Basics of the Employee Retention Credit
A refundable tax credit known as the ERC is intended for companies who either:
- Maintained employee pay while they were closed due to the COVID-19 epidemic; or
- Saw significant drops 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 or they can claim it on an amended return.
Employers must have experienced one of the following in order to qualify for the ERC:
- Sustained a full or partial suspension of operations due to orders from a governmental authority restricting commerce, travel, or group meetings as a result of 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.
Reminder: For the fourth quarter of 2021, the ERC is only available to recovery startup businesses. Additionally, qualified businesses are prohibited from claiming the ERC for any quarter on wages that were used to seek Paycheck Protection Program (PPP) loan forgiveness or that were used to claim other tax credits.
How to Continue
Please get in touch with us if you didn’t claim the ERC but think you should have. We can advise you on how to proceed.
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