After issuing a temporary moratorium in September, the IRS is poised to restart processing claims for the Employee Retention Tax Credit program or ERC. IRS Commissioner Daniel Werfel recently stated that the IRS will reset its approach to ERC claims after the moratorium was issued due to the number of fraudulent promoter scams and the filing of false ERC claims. The IRS has expressed concern on how honest taxpayers have been duped by promoters in filing false ERC claims. Commissioner Werfel emphasized that the IRS is focused on changing the way it processes these claims and on communicating the eligibility criteria to taxpayers. The IRS indicated a willingness to work with employers who received the credit, but were not actually entitled to it, allowing taxpayers to pay back the funds to the IRS. Those points were emphasized by IRS staff in a recent video available here.
Since the moratorium was issued, there has been some confusion about ERC eligibility and the status of the tax credit. Here are some general tips to determine if you are eligible to take advantage of this IRS program.
Background
The Employee Retention Credit (ERC) is a fiscal incentive created by Congress in the form of a payroll tax credit. The intent of the credit is to combat the negative impact on the economy caused by the COVID-19 Pandemic. More specifically, it is meant to help employers retain their employees. The potential maximum combined credit for 2020 and 2021 is $26,000 per employee. If you received a Paycheck Protection Program (PPP) loan, it is important to note that does not necessarily exclude you from qualifying for the ERC program.
Here are a couple of questions to help determine if you qualify for the credit:
Was your business impacted by a government mandate during 2020 or 2021?
Businesses impacted by closures and restrictions on hours or capacity may qualify. This provision also extends to suppliers of a business. If a business can prove its operations were impacted as a result of the inability to obtain goods or materials from its
suppliers, it may qualify for the ERC. If any aspect of your business was impacted by a government mandate, you could qualify.
Did your business have a reduction in gross receipts of at least 20% for any
quarter in 2021 or 50% in 2020 when compared to the same quarter in 2019?
Another way to qualify is based on a significant reduction of gross receipts. This is measured on a quarter by quarter basis. To qualify for a quarter in 2021, you need at least a 20% reduction of gross receipts compared to the same quarter in 2019. For 2020, you need at least a 50% reduction.
Start Your Employee Retention Credit Refund
To get you started on your ERC claim with the IRS, I would refer you to my friends at Strategic Tax Planning who have developed the following form to begin the process. Please contact me at phil@441consulting if you have any questions or otherwise want to learn more about the ERC to determine if you are eligible to take advantage of the tax credit.