This blog explains what the Employee Retention Credit is, who is eligible and how scammers try to use the ERC to scam you.
What is the Employee Retention Credit?
The Employee Retention Credit (ERC) is for employers that paid qualified wages to some or all employees after March 12, 2020, and before January 1, 2022 (Covid-19 times).
If you are eligible, then you can claim the ERC on an original or adjusted employment tax return for a period within those dates.
Who is Eligible for the ERC?
Your 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:
Companies that were shut down by a government order due to the COVID-19 pandemic during 2020 OR the first three calendar quarters of 2021
Experienced the required decline in gross receipts during the eligibility periods during 2020 OR the first three calendar quarters of 2021
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
The catch is- if you aren't actually eligible for this tax credit then you may have to pay back the money received (with fees and interest). So it's very important to talk to a tax expert if you'd like to claim this credit.
Here is a frequently asked question page: click here
And here's a helpful chart: click here
You get a phone call or an email saying something like: "Hello, we noticed you may not have taken advantage of the employee retention credit, we want to help you claim this credit for your business." These scams can come in many forms. But they usually offer something quickly and easily (they seem too good to be true).
At this point we are all pretty aware of scams. But if you're a new business or you're new to having employees then this can seem legitimate. We may think "oh well, the government did offer relief to businesses because of the pandemic"
Keep an eye out for:
Unsolicited calls or advertisements mentioning an “easy application process.”
Statements that the promoter or company can determine ERC eligibility within minutes or before any discussion of the employer’s tax situation. The Employee Retention Credit is a complex credit that requires careful review before applying.
Large upfront fees to claim the credit.
Fees based on a percentage of the refund amount of ERC claimed.
Promoters telling businesses to claim the ERC because they have nothing to lose. Those who improperly receive the credit could have to repay it – along with substantial interest and penalties.
Promoters telling businesses to ignore the advice of their trusted tax professional.
These promoters may lie about eligibility requirements. They may also be trying to steal your identity or use your information to take a cut of the improperly claimed credit.
The scammers continue to try new creative ways of luring you in. They may try:
Aggressive marketing. ERC ads are appearing almost everywhere, including radio, television and online as well as phone calls and text messages.
Direct mailing. Some ERC promoters are sending letters to taxpayers from non-existent groups like the “Department of Employee Retention Credit.” Scammers will create these letters to look like official IRS correspondence or an official government mailing with language urging immediate action.
Leaving out key details. Third-party promoters of the ERC often don’t accurately explain eligibility requirements or how to calculate the credit. They may make broad arguments suggesting that all employers are eligible without evaluating an employer’s individual circumstances. Many promoters don’t tell employers that they can’t claim the ERC on wages that they reported as payroll costs if they received Paycheck Protection Program loan forgiveness.
Stay aware. If it seems to good to be true, it probably is.
Feel free to contact us if you think you may be eligible for the real Employee Retention Credit.
This blog post is not a substitute for legal or financial advice and is not liable for any misinformation that may have been provided. This information has been provided by the IRS newsletter and website.