The COVID-19 pandemic presented numerous challenges for businesses worldwide. To provide relief, the Employee Retention Credit (ERC) emerged as a vital support mechanism. Understanding the eligibility criteria, benefits, and being vigilant against scams are crucial aspects for business owners seeking relief. In this post, we will explore ERC eligibility for businesses in 2020 and 2021, discuss the advantages of the credit, and - most importantly - shed light on the importance of staying aware and protected against fraudulent advertisements and schemes.
The IRS has issued a renewed warning urging business owners to carefully review the ERC guidelines before trying to claim the credit. Additionally, the IRS and tax professionals continue to see third parties aggressively promoting these ERC schemes on radio and online.
Employee Retention Credit (ERC) Eligibility for 2020 and 2021
The ERC serves as a lifeline for businesses impacted by the pandemic.
To qualify for the ERC for 2020, the business must meet one of the following criteria:
1. Significant Decline in Gross Receipts:
A decline of 50% or more in gross receipts compared to the same quarter in 2019.
The decline continues until the business's gross receipts recover to 80% of the comparable quarter in the prior year.
2. Full or Partial Suspension of Operations:
A business faced a full or partial suspension of operations due to government orders, such as mandated closures or significant restrictions.
To qualify for the ERC for 2021, the eligibility criteria expanded to include:
1. Significant Decline in Gross Receipts:
A decline of 20% or more in gross receipts compared to the same quarter in 2019.
Alternatively, the business can compare the gross receipts of the current quarter to the corresponding quarter in 2019 or the immediately preceding quarter.
2. Full or Partial Suspension of Operations:
A business faced a full or partial suspension of operations due to government orders.
Maximizing ERC Benefits and Compliance
Understanding the benefits and compliance requirements of the ERC is crucial. Consider the following points:
The maximum amount of qualified wages for the ERC in 2020 was $10,000 per employee per year. In 2021, it increased to $10,000 per employee per quarter.
Familiarize yourself with the official IRS guidelines to ensure accurate and compliant ERC claims.
Seek guidance from certified public accountants (CPAs), tax attorneys, or reputable tax advisory firms to maximize ERC benefits and ensure compliance.
The IRS Office of Professional Responsibility is working on additional guidance for the tax professional community that will be available in the near future.
BEWARE OF ERC SCAMS AND PROTECT YOUR BUSINESS***
The rise of ERC scams has put many business owners at risk. Protect your business by being aware of the following red flags:
Unsolicited offers promising quick access to the ERC or high credit amounts.
Demands for upfront fees or personal financial information.
High-pressure tactics that create a sense of urgency to bypass due diligence.
Lack of professionalism, including poor grammar, spelling errors, and unprofessional email addresses or websites.
***If you take nothing else away from this post, I hope you will be extra diligent of the "too good to be true" offers!
These promoters charge large upfront fees or a fee that is contingent on the amount of the refund. And the promoters may not inform taxpayers that wage deductions claimed on the business' federal income tax return must be reduced by the amount of the credit.
Protecting Your Business from ERC Scams
To safeguard your business from ERC scams, follow these essential precautions:
Educate yourself about the official ERC guidelines issued by the IRS.
Verify the credentials of any service provider offering ERC assistance.
Conduct thorough due diligence by researching the background and reputation of potential service providers.
Consult with trusted professionals such as CPAs, tax attorneys, or reputable tax advisory firms.
Stay informed, remain cautious, and rely on reliable sources to protect your business from fraudulent schemes.
Beware of the advertisers in TV commercials.
Businesses should be cautious of advertised schemes and direct solicitations promising tax savings that are too good to be true. Taxpayers are always responsible for the information reported on their tax returns. Improperly claiming the ERC could result in taxpayers being required to repay the credit along with penalties and interest.
The Employee Retention Credit (ERC) serves as a crucial lifeline for businesses during these challenging times. By understanding the eligibility criteria, maximizing ERC benefits, and staying vigilant against scams, business owners can navigate.
*Disclaimer: This article is not meant to be tax advice. This is not an all-inclusive list of business advice. Different rules may apply to each individual taxpayer’s specific situation. Please consult with your accountant.