A survey by the National Federation of Independent Business (NFIB) found that only 4% of small business owners are “very familiar” with the Employee Retention Tax Credit program. Furthermore, only 32% said they were “somewhat familiar” with the incentive. Scammers are taking advantage of this unfamiliarity to collect high fees from business owners. Unscrupulous companies promise to help businesses claim the ERTC, regardless of whether or not they qualify.
What is the ERTC?
The Employee Retention Tax Credit (ERTC) is a federal tax incentive program designed to reward businesses that kept employees on payroll during the COVID-19 pandemic. Eligible employers can claim 70% of qualified wages paid to employees from December 31, 2020 through September 30, 2021 as a credit against Social Security tax.
The ERTC extended to the third quarter of 2021 for most businesses and to the fourth quarter of 2021 for qualified “recovery startup businesses.” Employers can claim a maximum of $7,000 per employee per calendar quarter.
Who Qualifies for the Employee Retention Tax Credit?
To qualify for the ERTC, employers must meet at least one of these requirements:
- Business has sustained a full or partial suspension of operations due to COVID-19 restrictions limiting commerce, travel or group meetings during 2020 or the first three quarters of 2021
- Business has experienced a significant decline in gross receipts during 2020 or the first three quarters of 2021 (gross receipts must be less than 50% of those earned in the same calendar quarter in the prior year)
- Business qualifies as a recovery startup business (a business that began operating after February 15, 2020 and earned gross annual receipts of less than $1 million)
Dangers of Improperly Claiming the ERTC
The IRS considers each taxpayer to be ultimately responsible for the information submitted on their tax returns. Those who improperly claim the Employee Retention Tax Credit—even unintentionally—could be required to repay the credit as well as penalties and interest.
It is worth noting that employers cannot claim the ERTC on wages that were reported as payroll costs when obtaining PPP loan forgiveness. Additionally, employers must reduce the amount of wage deductions claimed on their federal income taxes by the amount of the ERTC. For example, a business that claimed a credit of $21,000 on their employment tax return must also remove $21,000 from the deducted wages on their income tax return.
If you have mistakenly filed an income tax return deducting qualified wages before filing an employment tax return claiming the Employee Retention Tax Credit, you should file an amended income tax return to correct any overstated wage deductions.
Employee Retention Tax Credit Scams Are on the Rise
Recently, the IRS released a statement cautioning business owners to be warry of third parties who promise to help them claim the ERTC in exchange for a high upfront fee or percentage of the credit. Scammers are reaching out to businesses en masse without first verifying that they qualify for this tax incentive. Some scammers may even provide fake documents to suggest the business qualifies.
7 Signs an ERTC Offer Could Be a Scam
Being aware of potential Employee Retention Tax Credit scams will help you protect your business from unscrupulous individuals who seek to take advantage of you. You may be dealing with a fraudulent ERTC company if:
- They request a large upfront payment or percentage of your credit in advance of you receiving it
- They contact you directly via a telemarketer
- The company hasn’t been around for very long
- They are unable to provide you with proof that you qualify for the ERTC
- They don’t offer audit protection
- They aren’t registered with the IRS
- The company doesn’t have a history of successfully filing for ERTCs
A reputable tax professional will be able to confidently answer your questions, provide you with any requested information and demonstrate a strong history of helping other businesses obtain federal tax credits.
How to Properly Claim the Employee Retention Tax Credit
Amidst all the scammers, there are experienced, ethical and transparent tax firms that can help you claim this valuable tax credit. Engineered Tax Services has significant experience guiding business owners through the labyrinthine process of applying for the ERTC. Our tax and legal team’s integrity, longevity and proven track record of excellence and transparency with our clients defines us.
Feel free to contact us today to find out if your company qualifies for this timely tax incentive. We’d be happy to provide you with a free Employee Retention Tax Credit analysis.
