Top 5 Things To Look Out for With the ERC
Thought Leadership by KBKG, 4/19/2023
Over two years after the CARES Act introduced the Employee Retention Credit, eligible businesses and nonprofits can still claim it on their tax returns. You may want to claim the ERC tax credit but do not know the applicable guidelines. How do you navigate the sea of regulations? What can you do to avoid costly scams by unscrupulous solicitors? We’ll review five essential things to look out for with the ERC.
Table of Contents:
1. Beware of Tax Credit Scams
If something sounds too good to be true, it probably is. The Internal Revenue Service warns taxpayers about aggressive scam artists making exaggerated claims about the ERC. They convince ineligible taxpayers to file for the credit anyway, charging exorbitant upfront fees based on overinflated refund projections. The IRS reminds taxpayers that they’re responsible for repaying improper ERC claims with penalties and interests. Avoid direct solicitations and check your ERC eligibility for the credit per IRS regulations.
2. Read the Latest IRS Warnings
The sheer number of ERC scams is daunting enough. Even worse, the responsibility for improper claims falls square on taxpayers’ shoulders. There are no regulations governing firms purporting to help with obtaining ERCs. They don’t have to present credentials or certify results — making it much easier to commit fraud. You can prevent falling victim to deceptive tactics and other pitfalls by reading the latest IRS news bulletins.
3. Partner With a Firm Your CPA Trusts
Many business owners find tax regulations challenging to understand. Working with certified public accountants is a wise move. Besides helping you avoid common tax scams, a CPA can offer valuable guidance and prepares returns. Moreover, CPAs partner with companies like KBKG for up-to-date information and advanced solutions that help them deliver the highest quality service. At KBKG, we provide regular tax insights and beneficial information to help taxpayers achieve the best possible outcomes.
4. Watch Out for Confusing ERC Qualification Rules
The CARES Act established the initial rules for calculating and claiming the ERC for 2020. Guidelines for the Employee Retention Credit 2021 are different. Several subsequent laws extended the credit and broadened potential eligibility:
- The Relief Act of 2021 expanded the qualified wage period to include January 1 through June 30, 2021.
- The American Rescue Plan and the Infrastructure Investment and Jobs Act extended the cutoff date to September 30, 2021.
Additionally, the IIJA allows recovery startup businesses to claim the ERC for wages paid through December 31, 2021. The IRS outlines criteria defining a recovery startup business in part III section D of Notice 2021-49.
Key Details on Claiming the ERC
Calculating the ERC is different for each year. Those claiming it for 2020 can take 50% of qualified wages and certain healthcare benefit costs up to $10,000. The IRS permits a maximum of $5,000 per employee for the year. Taxpayers claiming it in 2021 can take 70% of wages and certain healthcare benefit costs up to $10,000 quarterly. The IRS allows you to claim up to $28,000 per employee.
While figuring out your eligibility for the ERC in either year, you should consider a few factors. You cannot claim it for majority shareholding employees (those who own over 50% of your company). The IRS also doesn’t permit employers to claim it for most family member employees: parents, siblings, grandparents, aunts, uncles, nieces, nephews, in-laws, or step-relatives.
5. Do Your Homework Before Filing for an ERC Tax Credit
Research is the first step in ensuring that you correctly claim the ERC (or ERTC) tax credit. When accurate facts and misinformation abound, you must know what sources to trust. Besides the IRS, experienced tax professionals like your CPA firm and KBKG provide correct data and expert judgment on credits, liabilities, and other tax issues. Consult with KBKG for impactful tax solutions that deliver quantifiable value for your organization. Contact us online or call (877) 525-4462.
KBKG is providing the following services to assist with ERC:
- Determine if the employer qualifies, and if so, for which quarters,
- Determine which employee wages qualify
- Calculate credits, including analysis of PPP interplay, and
- Reconcile actual credits with advance credits requested
- Prepare reconciled data for Form 941-X
- Prepare documentation supporting a business’ qualifications
Curious to know more about the ERC credit? Contact us today.