Understanding Employee Retention Tax Credit

Number one on the IRS 2023 Dirty Dozen list is the Employee Retention Tax Credit (ERTC) misuse. This refundable tax credit is designed to reward business owners for retaining employees throughout the COVID-19 pandemic and its aftermath. IRS is cautioning business owners about bad advice on how to qualify. The ERTC is a powerful incentive available to businesses, but it must be appropriately documented and calculated. It is, therefore, critical to understanding the problems that could result.

  1. Not every business qualifies for ERC. You don’t qualify just because the pandemic impacted your business. Your industry, state, and circumstances determine your eligibility for this credit and how much.
  2. Likely, you cannot claim $26,000 for every employee.
  3. Only specific COVID impact causes a business to qualify.
  4. Only specific government guidelines will cause a business to qualify and relate to qualified wages during particular periods. Go to https://www.irs.gov/newsroom/irs-issues-renewed-warning-on-employee-retention-credit-claims-false-claims-generate-compliance-risk-for-people-and-businesses-claiming-credit-improperly

Claiming PPP can affect how much ERC can be claimed.

Promoters on TV and Radio charge hefty fees contingent on the refund amount.

Costs are involved in securing the funding, and the credit is recovered by reducing the wage expense paid by the employer on the annual income tax return. It is not forgiven as PPP under the Cares Act.

It is advertised that you can receive $26,000 per employee, but you should look closely at the requirements. You will not be able to deduct the wages that the ERTC represents; thus, you must cut your compensation by the amount of the credit.

According to Acting IRS Commissioner Doug O’Donnell, IRS auditors and criminal investigators are actively examining false claims for refunds related to ERTC. IRS provided all taxpayers with the fax hotline, 877-477-9135. Taxpayers can call the Treasury IG for Tax Administration (TIGTA) at 800-366-4484. The program is not administered by the Small Business Administration (SBA) as with PPP but is under the guidance and enforcement of the IRS.

If business owners need a helping hand in the aftermath of COVID-19,  the Internal Revenue Service can help with a tax refund. Businesses will need help determining qualified wages, calculating the credit, amending tax returns, and preparing Form 941X.

If you are a Law firm or your business owner clients need a forensic accountant, contact retired IRS Special Agent, call Edmond J. Martin, Chief Investigator, at Sage Investigations, LLC at 512-659-3179 or email edmartin@sageinvestigations.comClick to read about the Sage Team and their CVs.