What is an Employee Retention Credit?
As explained by the IRS, an Employee Retention Credit (ERC or ERTC) is a payroll tax credit, “available to eligible employers that paid qualified wages to some or all employees after March 12, 2020, and before January 1, 2022. Eligibility and credit amount vary depending on when the business impacts occurred. The ERC is not available to individuals.
Generally, businesses and tax-exempt organizations that qualify are those that:
- Were shut down by a government order due to the COVID-19 pandemic during 2020 or the first three calendar quarters of 2021, or
- Experienced the required decline in gross receipts during the eligibility periods during 2020 or the first three calendar quarters of 2021, or
- Qualified as a recovery startup business for the third or fourth quarters of 2021
Eligible employers must have paid qualified wages to claim the credit. Eligible employers can claim the ERC on an original or adjusted employment tax return for a period within those dates”. Source: www.irs.gov
This means that the ERC is a legit credit – IF you qualify. And that is a big “IF”.
The ERC scam script
Almost every day we receive calls and emails promising us that our CPA firm “pre-qualified” for $26,000 in tax credits, which at first glance sounds amazing.
However, we absolutely know we do NOT qualify, because we do not meet any of the conditions above.
How can someone know we qualify without speaking with the owers, analyzing our payroll and tax returns?
Scammers convince ineligible businesses, such as our own, to amend their tax returns and claim the credit. Scammers promise they will not get paid until you receive your refund – and you very well MAY receive ERC money from the IRS once your tax return is amended (with inaccurate information).
The problem is – the IRS will realize in a year or two that you were ineligible to clam the credit, and the credit was claimed illegally. You will then be subject to penalties, back taxes, and interest.
The scammer? They’ll be long-gone with their share of your “refund”, usually 20% or more.
It’s not ALL a scam
Not all ERC companies are trying to scam you. If you believe you qualify for the Employer Retention Tax Credit, reach out to your payroll provider (QuickBooks Payroll, ADP and Gusto are just a few examples). They should be able to see if you qualify, and then either help you claim the credit themselves, or refer you to a ERC specialist, often a CPA.
Always speak with your payroll provider before working with any third-party ERC specialist.
The IRS wants taxpayers to be cautious!
The IRS urges taxpayers to be cautious, diligent and use common sense when receiving calls or seeing ads pertaining to ERC. The ads are all over radio, TV and social media. You may even get ads that look like official government letters, or texts, emails and phone calls advertising ERC eligibility.
To find out more, click on this link to a video.
Tax reduction without ERC?
The ERC credit is an example of a tax credit, and applying it leads to tax reduction.
However, not all is lost for business owners who do not qualify for ERC. We have plenty of other, legal, tax reduction strategies – click here to schedule a free consultation, and here to read more about tax reduction planning!