What would you do if I told you I could guarantee your small business a refundable tax credit of $26,000 per employee—without ever having seen your books?
I hope you’d run in the opposite direction.
But increasingly, employers are sticking around to hear more, and some have been convinced to claim the Employee Retention Credit, or ERC, when they might not qualify. This week, the IRS warned businesses to be cautious when third parties promise tax savings that are too good to be true.
ERC Basics
The ERC was introduced in March 2020 as part of the CARES Act. It targeted businesses that continued paying employees while their doors were shut or while they were experiencing significant declines in gross receipts. For most businesses, the credit applies to wages paid between March 13, 2020 and Sept. 30, 2021. Generally, only recovery startup businesses can claim the ERC for wages paid after Sept. 30, 2021.
The credit is tied to payroll and is calculated quarterly. Businesses that claimed the ERC contemporaneously with their payroll tax returns could reduce the required deposits of payroll taxes by the amount of the credit.
Businesses that didn’t claim the credit when filing their original returns can file amended tax returns. The usual rules apply, which means that you typically must file Form 941-X within three years of filing or two years from the date the tax was paid, whichever is later.
Treasury Sees a Problem
All of this free money has proved to be a temptation. This…
