Tired of seeing and hearing all these ads for Employee Retentions Credits (ERC) and wondering if my business qualifies? Amid rising concerns about a flood of improper Employee Retention Credit claims and other related business scams, the Internal Revenue Service announced last week a moratorium through at least the end of the year on processing new claims for the pandemic-era relief program.
The IRS continues to work previously filed ERC claims received prior to the moratorium but renewed a reminder that increased fraud concerns means processing times will be longer. Previously, the IRS indicated that they were increasingly shifting its focus to review these claims for compliance concerns, including intensifying audit work and criminal investigations on promoters and businesses filing dubious claims. The IRS has indicated that hundreds of criminal cases are being worked, and thousands of ERC claims have been referred for audit.
The IRS emphasizes that payouts for these claims will continue during the moratorium period but at a slower pace due to the detailed compliance reviews. With the stricter compliance reviews in place during this period, existing ERC claims will go from a standard processing goal of 90 days to 180 days – and much longer if the claim faces further review or audit. The IRS may also seek additional documentation from the taxpayer to ensure it is a legitimate claim.
When properly claimed, the ERC – also referred to as the Employee Retention Tax Credit or ERTC — is a refundable tax credit designed for businesses that continued paying employees during the COVID-19 pandemic while their business operations were fully or partially suspended due to a government order or they had a significant decline in gross receipts during the eligibility periods. The credit is not available to individuals.
Although promoters advertise that ERC submissions are “risk free,” there are significant risks facing businesses as the IRS increases its audit and criminal investigation work.
The IRS reminds anyone who improperly claims the ERC that they must pay it back, possibly with penalties and interest. A business or tax-exempt group could find itself in a much worse financial position if it has to pay back the credit than if the credit was never claimed in the first place. This underscores the importance of taxpayers taking precautionary steps to independently verify their eligibility to receive the credit before applying through a promoter. Taxpayers should take particular precautions because a promoter can collect a contingency fee of up to 25% of the ERC refund.
The ERC is an incredibly complex credit, and there are very specific eligibility requirements for claiming the ERC. Employers can claim the ERC on an original or amended employment tax return for qualified wages paid between March 13, 2020, and Dec. 31, 2021. However, to be eligible, employers must have:
- Sustained a full or partial suspension of operations due to orders from an appropriate governmental authority limiting commerce, travel or group meetings because of COVID-19 during 2020 or the first three quarters of 2021,
- Experienced a significant decline in gross receipts during 2020 or a decline in gross receipts during the first three quarters of 2021, or
- Qualified as a recovery startup business for the third or fourth quarters of 2021.
Checking your eligibility
| This chart can help a business or other organization quickly decide if they may qualify for the Employee Retention Credit. This is a very technical area of the law, but this chart includes the main eligibility factors. Answer these questions in numerical order to see if you may be eligible to claim the ERC. Eligibility questions | Next steps |
| Did you have employees and pay wages to them between March 13, 2020, and December 31, 2021? For more info, see irs.gov/ercqualified | If yes, go to #2. If no, you aren’t eligible to claim the ERC. If you improperly claimed ERC, see Part C. |
| 2. During that time, were you: • A self-employed individual who didn’t have employees? • A household employer? | If yes to either question, you aren’t eligible to claim the ERC. If you improperly claimed ERC, see Part C. If no, go to #3. |
| 3. Did your trade or business experience a significant decline in gross receipts during the eligibility periods during 2020 or the first three calendar quarters (Jan. through Sept.) of 2021? For more info and examples, see the ERC frequently asked questions: irs.gov/ercdecline | If yes, you may be eligible for the ERC. You will need to confirm that your decline in receipts meets requirements. See the ERC frequently asked questions: irs.gov/ercdecline. If you meet the requirements, skip to Part B. If no, go to #4. |
| 4. Were you a recovery startup business? That’s certain businesses or organizations that began carrying on a trade or business after February 15, 2020. The new trade or business doesn’t need to be pandemic- or recovery-related. | If yes, you may be eligible for the ERC, but you must confirm that your gross receipts meet specific requirements related to recovery startup businesses. See the ERC frequently asked questions: irs.gov/ercrecovery. If you meet those requirements, skip to Part B. If no, go to #5. |
Please contact your MUAC professional if you need more assistance with the ERC credit. Also, for more info, see the IRS website for ERC frequently asked questions: irs.gov/ercrecovery.
