AccuPay has been helping clients of our payroll/HR services firm calculate and file ERC tax credit claims, resulting in IRS refund checks, for 2 years now. We have educated many of our clients and their business associates on ERC concepts, eligibility, calculations, filing procedures, etc. and have had dozens of conversations with the IRS as we monitor the progress of pending ERC claims. We have also had many discussions with CPA’s and other experts in ERC tax law and filing procedures. And, finally, we have seen countless promotions from dozens of “firms” who have “popped up” this year to “help” employers receive their share of ERC money in exchange for huge fees paid to these “firms.”
Based on our experience working with Employee Retention Tax Credits over the past 2 years, in all phases of this new tax law program, the intention of this PayDay article is to share our “real life” observations with you so you can make an informed decision about your own involvement with the ERC program—-SO here we go!!
I HAVE NOT YET CLAIMED ANY ERC TAX CREDIT REFUNDS—-SHOULD I?
You owe it to yourself to determine if you are eligible for ERC tax credits, since it is real tax law with potentially substantial IRS refund checks for those who qualify and file the necessary amended payroll tax returns. If you determine you do not meet either of the ERC eligibility tests, at least you have reviewed your eligibility for the ERC program. You may find that you do qualify under one or both of the primary eligibility tests, which can result in substantial IRS refund checks. (The substantial reduction in gross receipts is a rather straightforward “math test”—-the “suspension of operations test” is much more vague, but can still be navigated by ERC experts.) SO, YES, YOU SHOULD REVIEW YOUR ELIGIBILITY FOR THE ERC CREDITS. AccuPay has written extensively about ERC tax credit concepts in previous PayDay’s, and developed an ERC Quiz to help employers analyze their eligibility (which is always “step 1” in the ERC process). Our March 2021 PayDay helps employers navigate one of the more complex aspects of ERC calculations, the integration of ERC credits with PPP loan forgiveness, and the need to “sort” wages between the 2 very different programs.
WHAT IS THE DEADLINE FOR CLAIMING ERC CREDITS WHICH I QUALIFY FOR?
ERC tax credits are typically claimed on amended IRS quarterly 941 tax returns, since most employers did not claim the ERC credit on the original 941 return. ERC credits must be claimed within 3 years from the original due date of the quarterly IRS 941 return you are amending. The Q2 2020 941 return deadline was July 31, 2020, SO you have until July 31, 2023 to amend your Q2 2020 941 and claim ERC tax credits for Q2 of 2020. Any ERC tax credits earned for wages paid March 13-March 31, 2020 are actually claimed on the Q2 2020 941 form (the “oldest” possible ERC wages are those which were PAID after March 12, 2020).
IRS AUDITS, FRAUD, USE OF ERC EXPERTS
Be careful whom you use to guide you as to ERC eligibility and processing of amended tax returns. We have worked with some outstanding CPA firms and consultants who have helped employers determine their eligibility and know how to calculate correct amounts of ERC tax credits. AccuPay’s involvement with those employer-clients of our firm has been to prepare and file the amended IRS 941X quarterly payroll tax returns, which is how you claim ERC tax credits/IRS refund checks. We have also found that some accounting firms are honest in telling their clients that they are not experts in ERC tax credits and they refer them out to other experts—we have helped those referred clients determine eligibility and if eligible, calculate their correct ERC tax credit amounts, prepare the amended tax returns, file them with the IRS and monitor their status/progress by reviewing IRS online tax transcripts and/or calling the IRS to inquire about claims which do not seem to be progressing towards refund status. During 2022, it seems that many organizations have “popped up” and aggressively promote their help to employers in obtaining ERC money, for 20% or more of the ERC tax credit amounts (which is way too high!) Many of these “ERC mills” loosely interpret ERC eligibility, in particular being “creative” in their interpretation of the “suspension of operations by government order” eligibility test. The IRS is aware of these “pop-up” companies, and the IRS has also rejected many outright fraudulent ERC claims by “fake” employers. My sense is that the IRS will eventually audit some of the ERC claims, in particular the larger ones, so every employer filing for ERC tax credits should be prepared to document how they qualify and have details of their ERC credit calculations. Our PayDay from June 2022 discusses these ERC pop-up mills and possible IRS audits of the ERC tax credits. USE YOUR CPA OR ANOTHER CREDIBLE FIRM TO HELP YOU WITH ERC ELIGIBILITY AND CALCULATIONS!!
HOW LONG DOES IT TAKE TO RECEIVE MY ERC TAX CREDIT MONEY?
The IRS has been way behind/overwhelmed with all they have been tasked with pertaining to various aspects of pandemic funds. Originally, the IRS was taking at least 8 months to process and refund out virtually any ERC claim, regardless of amount, but recently we have noticed that ERC “per return” claims below $200K are being processed and refunding out, with interest, in about 3 months. With 2 years of ERC filing/processing/monitoring experience “under our belt” now, we have yet to see any ERC claims greater than $200K per a single amended 941X process out yet—at all! We have been told that all claims in excess of $200K per 941X are being sent to a “review unit,” whose purpose is to have a human being/IRS representative, review the ERC larger claims for possible fraud. Nobody knows how to contact this “special IRS unit,” and we are told they have no incoming phone service. We are not aware of any of our clients who have received any requests from the IRS for information to process their claim. We have had a few of our clients reach out to their elected Congress official to help them move their ERC claim forward, and we are hopeful that will produce results. The IRS has vastly improved their efficiencies on below 200K per 941X ERC claims, but those above 200K are “sitting,” while accruing interest, which is added to all IRS amended 941X refund checks.
MAKE SURE YOU DISCUSS YOUR ERC CLAIMS WITH YOUR CPA/TAX ADVISOR
The IRS and statute have indicated that ERC tax credits/IRS refund checks represent taxable income, since the amount of the ERC credit reduces the employer’s deduction for wages paid to employees. The IRS has also indicated that the ERC tax credits are taxable in the year to which they pertain, not when received—-thus, ERC tax credits based on wages paid during 2020 are taxable (our understanding) on your 2020 business tax return (which in many cases is taxable to the owners on amended K-1 schedules and amended personal income tax returns). Make sure you inform your CPA about ERC tax credits you have earned, quarter by quarter, separately, for years 2020 and 2021 (the ERC program is for wages paid through September 30, 2021)
If you have any questions about Employee Retention Tax credits, to include your eligibility fact pattern, contact your AccuPay payroll specialist or larry@accupay.com
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.