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Are your Employee Retention Credit Claims Correct?



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7 Warning Signs the IRS says to look out for on your Employee Retention Credit claim.


Disclaimer: We are not tax experts or tax advisors. This article is relaying information from the IRS news releases and should be used in conjunction with advice from your trusted tax professional.


In release IR-2024-39 dated Feb. 13, 2024, the IRS shared 7 warning signs Employee Retention Credit claims may be incorrect. Businesses should revisit eligibility prior to March 22, 2024.


What is The Employee Retention Credit?

The ERTC is a refundable credit for some eligible businesses who were affected during COVID-19. There is a complex eligibility process to determine if a business can claim this credit, with more information on determining eligibility available here. In short, eligibility starts with determining if a business was operating and paid qualified wages between March 12, 2020 and December 31, 2021.


How do I know if my Employee Retention Credit Claim is Correct?

Here are the IRS' 7 red flags for credit accuracy


Claiming more quarters than the business qualifies for

The IRS says businesses should verify they're only claiming the credit for the quarters they're actually eligible for, not every quarter the credit was open for.

Orders from the government that don't count

Government orders that partially or fully suspended business operations because of COVID-19 do count according to the IRS. But not every business was impacted in this way and thus the red flag behind claiming to be.

Excessive employees and incorrect math

Not every wage paid during the ERC period is eligible for the claim. There are tests to determine what qualified wages are as well as the wage limits between different ERC quarters.

Business cited supply chain issues

The IRS claims supply chain issues on their own are not typically a qualifying reason to be eligible for the credit and how impacted suppliers were is also a factor.

Business claiming ERC for too much of a tax period

This is one where the IRS says if a business was only eligible for the credit for part of a tax period, then they can only claim the part of the tax period they're eligible for, not the entire period.

Business didn’t pay wages or didn’t exist during eligibility period

This one is pretty straightforward, but if the business didn't exist and/or didn't pay qualified wages during the eligibility period, they can't claim the retention credit.

ERC promoter claims there's nothing at stake

Like any other business decision, it's important to vet those ERC professionals and not put the business at risk by claiming everything "just because".



Like any other tax error, rejected ERC claims can result in penalties, interest, repayments, additional audits, and expenses to revise prior returns. The claims process itself is complex, and that's why it's always a good idea to talk to a tax professional about the ins and outs of it.


 

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