Beware of consulting firms trying to solicit your business with misleading information about ERC
Recently, business owners have been targeted with communications about the Employee Retention Credit (ERC), which is a stimulus program created in response to the COVID-19 pandemic and economic shutdown. The goal of ERC was to incentivize companies and small businesses with a refundable tax credit for keeping staff employed and maintaining their payroll during 2020 and 2021.
Unfortunately, untrustworthy firms are taking advantage of the tax credit’s complexity by soliciting business owners and creating misconceptions about how to qualify. These suspicious companies may not be around to represent you in the event of an audit by the IRS.
Can ERC be applied to your company’s tax return?
- The credit is no longer available for future tax years, but you still have time to file for the periods 2020 and 2021.
- If you had no employees, there is no credit.
- Owner wages are excluded either way.
If your business had employees, there are two different ways to qualify for ERC:
First, if your company’s revenue per quarter dropped by the qualifying amount. This straight-forward figure is based on actual Revenue figures by quarter.
Second, if your business was required (i.e., mandated by the government) to shut down operations. The mandated shutdown periods were published by the government and these exact periods of time would qualify for the credit (not the entire quarter). This method can be more difficult to apply.
But there are several exceptions. For instance, if a supplier for materials required for your business was shut down and could not deliver them to you, and this had a significant effect on your operations, it is possible that you could qualify for one or more quarters (even if you do not qualify based on revenue decreases).
There are additional concerns about the calculations and qualifications for this credit. It is critical that you speak to a qualified tax representative about applying ERC to your business. We believe that solicitors are applying the “shut down” rules very liberally, which could cause a problem for a company if questioned by the government. The IRS has indicated that if the credits have been based on improper qualifications, payback plus a 25% penalty could result.
Bernstein Financial Services Inc. has helped guide business owners through the complexities of the tax code since 1989. Our team of experts help business owners improve their cash flow and profit margins while minimize your taxes. Learn more about our financial consulting firm.