IRS Warning on False Employee Retention Credit Claims 

The Internal Revenue Service (IRS) has issued repeated warnings to employers to be wary of third parties who may advise them to claim the Employee Retention Credit (ERC) when they may not qualify. The IRS also warned that improperly claiming the ERC could result in required repayment of the credit plus penalties and interest. 

Are There Any Red Flags to Look For? 

According to the IRS, “These third parties often charge large upfront fees or a fee that is contingent on the amount of the refund and may not inform taxpayers that wage deductions claimed on the business’ federal income tax return must be reduced by the amount of the credit.” The IRS also encouraged businesses to be cautious of “advertised schemes and direct solicitations promising tax savings that are too good to be true.”  

The warning advises that “People and businesses can avoid this scheme by not filing improper claims in the first place. If the business filed an income tax return deducting qualified wages before it filed an employment tax return claiming the credit, the business should file an amended income tax return to correct any overstated wage deduction.” 

What is the ERC? 

As a reminder, the ERC is a refundable tax credit for businesses that continued paying employees while partially or fully shut down due to COVID-19 or that had significant declines in gross receipts from March 13, 2020, to December 31, 2021. (Note: Only those classified as “recovery startup businesses” were eligible for the ERC in the fourth quarter of 2021). The ERC was meant to encourage employers to keep employees on their payroll during the pandemic. 

 Could I Still, in Fact, be Eligible for the ERC? 

If they have not already, businesses have until 2024 to claim the ERC retroactively by looking back on their payrolls during that time period. However, as an additional reminder, for any quarter during the window, eligible employers cannot claim the ERC on wages that were reported as payroll costs in obtaining Paycheck Protection Program (PPP) loan forgiveness or that were used to claim certain other tax credits. 

For more information or assistance, please contact our team at (210) 495-8474, toll-free at 1-888-757-2104, or in**@**********rs.com. 

This material has been provided for general informational purposes only and does not constitute either tax or legal advice. Although we go to great lengths to make sure our information is accurate, we recommend you consult a professional tax advisor or lawyer.