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Watch out for Aggressive ERC Tactics

“Multiple businesses notified us recently that their claims for the employee retention credit (ERC) are being audited by the IRS…now is the time to double check your analysis…particularly if you think you or your advisor may have taken aggressive positions. Claiming the ERC is no different than claiming a deduction on an income tax return — both are done under penalties of perjury.”

WithumSmith + Brown, PC

“Concerns Mount Over Aggressive Employee Retention Credit Firms”

Accounting Today

Unfortunately, whenever there is anything that seems like a “get rich scheme,” someone somewhere will get on the bandwagon and try and lure the uninformed into going for the fast money.

The Employee Retention Credit is a payroll tax credit wherein employers who had a downturn in income during COVID 2020 could amend their payroll federal form 94, remove all of the matching employer Social Security and Medicare taxes paid and either have the money refunded to them or roll it to an upcoming tax payment.

The rules are as follows to qualify for the ERC credit:

  • You had to be fully closed or partially closed due to a government order
  • Suffered a significant decrease in revenue. 2020 is 50% decrease and 2021 quarters 1 and 2 must have a 20% decrease
  • If you were partially closed yet considered essential
  • If you received a PPP loan only those wages NOT COVERED by the PPP are eligible to be considered

Here is a great flow sheet from Gusto, a payroll provider that helps illustrate this flow:

Graphic from GUSTO outlining how to determine if your business is eligible for ERC for the 2020 tax year.
Source: Gusto

There are CPA and Payroll firms as well as other companies offering to amend your 941s and take a percentage of your refund in payment. This is allowed under the Internal Revenue Code; however, you must remember that you are signing a jurat stating all the information is true and correct (we do that on our tax returns) but if the IRS later comes and audits the ERC, you are responsible for the repayment and any additional charges that may arise. I strongly urge any business that meets the income/employee test to go further and see if you can take the credit.

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