Seen any ads lately about how your Northeast United States business can still claim the Employee Retention Credit (ERC)? There are a lot of false claims out there saying you could receive thousands in government money to help your business. Naturally, in an economic crisis, that sounds VERY tempting.
But if the fairytale luster of those promises seems a bit too shiny, it’s probably because it is.
The IRS is more aggressively lasering in on ousting ERC mills claiming credit for ineligible people (see their most recent release right here). So, if you’re looking to apply for the credit, which you can, it’s important to know:
1) Are you actually qualified for the credit?
2) What do you do if you’ve fallen prey to one of these scams?
Knowing the answers to those questions matters when you’re liable for anything you sign your name to with Uncle Sam.
So, first, let’s do a little refresh on the ERC.
What is the Employee Retention Credit?
During the pandemic, lawmakers created the ERC as a refundable tax credit to give businesses a little boost if they kept employees on the payroll rather than letting them go. The credit gives each eligible employer up to $7,000 per employee per quarter for a maximum of $26,000 per employee for 2021.
Am I eligible for the credit?
If you didn’t claim the credit already for qualified wages paid between March 13, 2020, and Dec. 31, 2021, but want to, you need to first answer these questions:
- Was your Northeast United States business fully or partially shut down because of government restrictions during 2020 or the first three quarters of 2021?
- Did you experience a significant decline in gross receipts during 2020 or a decline in gross receipts during the first three quarters of 2021?
- Was your Northeast United States business qualified as a recovery startup business for 2021’s third and fourth quarters?
If you answered yes to these (or 2 out of 3), then you’re eligible for the credit and should apply. If not, then don’t get sucked into the cons that you can get thousands for it.
But being able to spot them helps.
What does an ERC mill look like?
ERC mills are companies that specialize in claiming the ERC on behalf of other businesses. They often charge a fee for their services and promise to maximize the ERC that their clients can receive.
And, as I mentioned before, the IRS is taking a much closer look at ERC mills to make sure they’re not making false or inflated claims on behalf of their clients. They’re specifically targeting the ones that have claimed credits for clients who weren’t eligible or who received more credit than they were entitled to.
What to do?
The crackdown is part of the IRS’s efforts to combat fraud and ensure that businesses are only claiming the credits they’re entitled to under the law.
Legitimate claims for the ERC are still allowed, and businesses should not be discouraged from claiming the credit if they’re eligible.
If you suspect you might have used an ERC mill in the past, you might want to review your claims and make sure that they were legitimate (see eligibility note above). If you’re still unsure about that or how much you’re eligible to claim, that’s something we can and should talk about: calendly.com/dave-the-cpa
Better to err on the side of caution and be upfront and honest with your tax filings. And that’s what we’re here to help you do.
Looking out for you,