The Internal Revenue service is warning small business owners about a popular yet somewhat controversial tax credit.
It’s called the Employee Retention Credit, or ERC, and a lot of specialist accounting and tax prep firms have popped up in hopes of helping small business owners properly claim the tax incentive provided by the government. It was intended to go to companies that were experiencing a lot of stress during the COVID-19 pandemic.
And while the credit is legitimate and available to some, the IRS is warning that it has strict requirements for eligibility, and many business owners may not fully comprehend the criteria.
As such, the IRS says that some business owners may simply ignore the opportunity, which could see them lose out on potentially getting a credit of as much as $26,000 for every employee. It could also mean these business owners could be tricked by a firm that’s just out to seek their money improperly, and then charge a significant fee to file.
One of the ways that business owners can claim the ERC is to help them with any wages they paid during the COVID-19 pandemic when the company’s gross receipts decreased.
A major issue surrounding the tax incentive is that it’s pretty easy to file to receive it. Because of this, it can be very easy for firms to trick small business owners.
Eisner Advisory Group’s partner Donald Hoffman explained to CNBC recently:
“Every business owner is getting dozens of emails and mail and being bombarded by television ads.”
The IRS tried to get out ahead of this started last October, when it started to warn small business owners about the possibility that third-party companies could try to promote ERC claims, even to companies that didn’t qualify for them.
The tax agency renewed that warning a few months ago, as it said in a press release that there continues “to be promoters who aggressively mislead people and businesses into thinking they can claim these credits.”
Fraudulent claims that involve the ERC credit were even added to the IRS’ “Dirty Dozen” tax scams list. In that release, Danny Werfel, the commissioner of the IRS, said:
“The aggressive marketing of these credits is deeply troubling and a major concern. There are very specific guidelines around these pandemic-era credits; they are not available to just anyone.”
The IRS said that many of the promotions rely on information that’s not accurate either about how the ERC is calculated or who is eligible to claim it. Some of these advertisement campaigns are designed just to collect someone’s sensitive personal information, which the actor then uses to steal their identity, according to the agency.
One of the ways that the IRS says business owners can ensure they are properly filing for an ERC that they qualify for – and that the company they are working with is legitimate – is to consult first with a CPA. These professionals will have a better idea of a business’ big picture, which will let them see whether ERC is even a possibility to begin with.