In response to an increasing number of invalid ERC claims, the IRS has recently updated their FAQ’s about the Employee Retention Credit. Within these new FAQ’s, the IRS again warns against “ERC mills” who engage in “aggressive marketing” to convince employers they can be guaranteed a large credit after an “easy” application process. These new FAQ’s can be found online, but below are some highlights.
Who is REALLY Eligible for ERC Tax Credits?
The IRS cautions that individuals, retirees, household employers, government agencies, and employers who did not pay qualifying wages during the covered periods are NOT eligible for these tax credits. Only employers who have one of following three qualifying conditions are eligible:
- Employers who sustained a full or partial suspension of operations, due to an order from an appropriate governmental authority, limiting commerce, travel or group meetings (churches) because of COVID-19 during 2020 (after March 12, 2020) or the first three quarters of 2021
- Employers who experienced a significant decline in gross receipts during 2020 or a decline in gross receipts during the first three quarters of 2021
- Employers who qualified as a recovery startup business for the third and fourth quarters of 2021
The FAQ’s go on to clarify the three qualifying circumstances above, stating that the government order cannot simply be a recommendation, but must be a federal, state or city/local order, specifically related to COVID-19, that either fully or partially suspended trade or business. This does not include having employees move to remote work if the business was still able to operate. Likewise, if your business closed or reduced hours voluntarily based on a “recommendation” from a government agency, you do not qualify based on this condition. Generally speaking, restaurants often qualify due to government orders that either closed or reduced the capacity for dining establishments during the pandemic. Other COVID-related factors, such as supply chain issues, must be proven to have had a significant impact on business operations. Many businesses were impacted by supply chain issues but do not qualify for ERC tax credits. Finally, the IRS clarifies that to qualify as a recovery startup, the business did not begin operations until after February 15, 2020 and had average annual gross receipts of $1 million or less for the three years prior to the quarter for which ERC’s are being claimed. AccuPay has drafted several previous blog posts regarding ERC eligibility. See our blog for more information.
Deadline to Claim the ERC
The new FAQ’s include the specific ERC filing deadlines of April 15, 2024 for 2020 tax periods and April 15, 2025 for 2021 tax periods. If you suspect your business may qualify, but have not yet applied for ERC credits, now is the time to contact a reputable resource, such as your CPA, to begin the review process. If you are a client of AccuPay, contact your Payroll Specialist or our in-house expert, Larry Shaub, at larry@accupay.com for assistance.
ERC Scam Warnings
Based simply on the amount of space the IRS dedicates to addressing ERC scams, it is clear that this has become a major concern. If you have considered using an unknown third-party to process your ERC tax credits, you are encouraged to review the new FAQ’s in their entirety, but we will summarize some of the main points here.
The IRS warns that ERC scammers often promote an “easy application process,” and claim they can determine eligibilty within minutes. Many will leave out key details when determining a client’s eligibility in order to maximize the amount claimed – and their fee! Due to the complexity of these tax credits, a quick review is often not possible – and certainly cannot be promised before knowing anything about the business! Be sure that your chosen partner is taking into consideration all applicable factors – including your participation in the Payroll Protection Program.
Scammers often request a large up-front fee, and will frequently refuse to sign the amended returns, to ensure they are not exposed to any risk associated with faulty ERC claims. (As a side note, make sure you have completed a POA for any third-party who signs your ERC returns, or they will not be processed!) The IRS seems very concerned with the aggressive marketing tactics of “ERC mills,” some of which even use made-up, official-sounding names like “Department of Employee Retention Credit” in their promotions, which does not exist.
To protect your business from these aggressive ERC scammers, the IRS encourages you to work only with trusted tax professionals. Your CPA or payroll provider are a good place to start, If you do choose to work with an otherwise unknown third-party, make sure they provide you with a detailed worksheet of how your ERC credit was determined. Review it carefully to make sure all the details are correct. Finally, educate yourself! Visit the IRS website or AccuPay’s blog for more information on eligibilty so you can be certain you qualify before filing any amended returns. Keep in mind that ERC credits received in error may have to be paid back – with interest – if the IRS later determines your claim was invalid.
Need Help?
AccuPay has been helping our employer-clients correctly claim ERC tax credits for over two years. If you are an AccuPay client and would like to know whether you are eligible, reach out to Larry Shaub at larry@accupay.com. If you are not an AccuPay client, we recommend you start with a trusted CPA or payroll provider.
This PayDay is for educational purposes only and does not constitute tax and/or legal advice. Any links to external resources are for educational purposes only. AccuPay is not affiliated with nor receives any renumeration from any outside sources. Please consult with your tax and/or legal advisor before applying any suggestions made here or through external links.