Navigating the New Phase of Employee Retention Credits (ERC)
By Ian Williams, Director | Employee Retention Tax Credits KBKG
As Certified Public Accountants (CPAs), staying current with tax regulations is a top priority. In recent times, the Employee Retention Credit (ERC) program has undergone significant changes. The Internal Revenue Service (IRS) Commissioner’s latest signals have indicated a new phase for ERC. In this blog post, we’ll delve into the ERC program, the impact of recent developments, and how CPAs can guide their clients through these changes.
The Employee Retention Credit (ERC) Explained
The Employee Retention Credit (ERC) is a valuable tax incentive aimed at helping businesses during challenging times, established because of the COVID-19 pandemic. It was designed to encourage employers to retain employees on their payroll during the uncertain times of COVID-19. Eligible employers can claim a refundable tax credit for a portion of their payroll during qualifying quarters in 2020 and 2021.
Key Aspects of ERC
To help CPAs provide effective guidance, let’s break down some key aspects of the ERC:
- Eligibility: The ERC was designed for businesses that suffered a significant decline in gross receipts or faced government-mandated shutdowns related to COVID-19.
- Credit Amount: The ERC offers a credit of up to $5,000 per employee for wages paid from March 13, 2020, through December 31, 2020. For 2021, the maximum credit increased to up to $7,000 per employee, per qualifying quarter.
- Changes in 2021: In 2021, ERC underwent several changes, including expanded eligibility and increased credit amounts.
Recent Developments: The IRS Commissioner's Signals
One of the most significant developments in the ERC program is the IRS Commissioner’s recent signals. These signals have major implications for CPAs and their clients.
- Backlog Elimination: The IRS has taken steps to eliminate the backlog in ERC processing, which had been causing delays for businesses. This means quicker processing times for claims.
- Fraud Risk: With the backlog cleared, the IRS is now focusing on mitigating the growing risk of fraud within the ERC program. This will involve implementing additional procedures to scrutinize claims more thoroughly.
Impact on Businesses and CPAs
The impact of these developments is substantial. Businesses can expect faster processing of ERC claims, which is crucial for their financial stability. However, the increased focus on fraud risk means that thorough documentation and compliance are more critical than ever.
How CPAs Can Navigate the Changes
As a CPA, you play a pivotal role in helping your clients navigate the changing ERC landscape. Here’s how you can provide valuable support:
- Stay Informed: Regularly check the IRS website and trusted sources for updates. The IRS Commissioner’s signals are an essential resource.
- Review and Update Records: Assist your clients in maintaining complete, accurate, and up-to-date records. This will be crucial in defending against potential audits.
- Compliance Assistance: Guide clients through compliance with new IRS procedures, including additional documentation requirements.
- Audit Support: In the event of an IRS audit, provide vital support, such as representing clients and ensuring all requested documentation is readily available.
Monitoring ERC with 941x Refund Status
To ensure clients receive their ERC tax credits promptly, you should monitor their 941x refund status closely. This allows you to track the progress of their refund claims and address any issues promptly. Monitoring the status of client’s refund requests has proven difficult. CPAs and clients can call the IRS for a status update, but there are typically long hold times.
Navigating the new phase of Employee Retention Credits (ERC) with the IRS requires CPAs to stay informed. The recent developments, including backlog elimination and increased fraud risk mitigation, make your role as a CPA more crucial than ever in ensuring your clients maximize the benefits of the ERC program while remaining compliant with IRS regulations. Your expertise is invaluable in guiding businesses through these changes and helping them achieve financial success.
- Employee Retention Tax Credit – Benefit Estimate
- Where is My Employee Retention Credit Refund?
- KBKG Tax Insight: IRS warns Taxpayers of Improper Employee Retention Credit Claims and ERC Mills
- KBKG Tax Insight: IRS To Target Abusive ERTC Claims. Analysis of Government Shutdown & Supply Chain Rules
- It’s Not Too Late to Claim Employee Retention Tax Credits
- The Employee Retention Tax Credit (ERC): What Small Businesses Need to Know