Here’s what you should know about employee retention tax credit claims
IRS Commissioner Daniel Werfel testifies before a Senate Finance Committee hearing on February 15, 2023.
Kevin Lamarque | Reuters
As the IRS pauses processing new applications for a pandemic-era small business tax break, some applicants are in limbo while the agency works on further guidance.
The IRS on Thursday temporarily stopped processing amended payroll tax returns to claim the so-called Employee Retention Tax Credit (ERC), which was implemented during the Covid-19 pandemic.
According to the IRS, the program has sparked a flood of “questionable claims” worth thousands per eligible employee as a cottage industry of specialty firms has emerged and pressured small businesses to falsely claim the tax breaks.
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“Companies that wrongly receive ERC payments face the daunting prospect of paying them back. Therefore, we advise extreme caution,” IRS Commissioner Danny Werfel said Thursday, urging small businesses to review claims with a qualified tax professional.
In the meantime, the IRS is working on further guidance on revoking unprocessed ERC applications, as well as a settlement program for small businesses that wrongfully received the loan and want to repay it.
“There is no need to panic”
While affected small businesses may be concerned, “there’s no need to panic,” said Jennifer Rohen, director at CliftonLarsonAllen with experience in using the ERC.
If you’ve claimed the credit and are concerned about eligibility, now is an excellent time to review your filing with a qualified tax professional, she said.
The IRS has published a detailed notice ERC Eligibility Checklist to support applicants. The credit was designed for small businesses and tax-exempt organizations that paid their employees during government-ordered shutdowns or experienced a “significant decrease in gross receipts” during certain periods in 2020 and 2021.
My general advice is always to speak to a qualified tax advisor who has filed the tax return [ERC claims] Before.
Craig Hausz
CEO and Managing Partner at CMH Advisors
“My general advice is always to speak to a qualified tax advisor who has filed the tax return [ERC claims] said certified financial planner Craig Hausz, CEO and managing partner at CMH Advisors in Dallas. He is also a certified public accountant.
If you’ve received the credit and know you’re not eligible, Hausz says you should start paying the money back. “I think the IRS will be much more lenient in reducing penalties and interest if someone proactively sends money back,” he added.
There is still time for a “valid claim”
As the deadline for amended 2020 tax returns approaches, there is still time for legitimate ERC claims, said Kristin Esposito, director of tax policy and advocacy at the American Institute of CPAs. Small businesses have until the 2024 tax deadline to amend their 2020 tax returns.
“If you have a valid claim, I would still go through the calculation and have all your documentation ready,” she said. “But if it seems too good to be true, it usually is.”
Hausz said new ERC applications will not be processed until 2024 at the earliest and applicants may not receive the credit until the spring or summer.
https://www.cnbc.com/2023/09/18/heres-what-to-know-about-employee-retention-tax-credit-claims.html Here’s what you should know about employee retention tax credit claims
