The Employee Retention Credit (ERC) acted as a vital financial lifeline for countless businesses hit hard by the COVID-19 pandemic. This refundable tax credit delivered substantial payroll tax relief to eligible employers who weathered significant revenue losses or forced shutdowns due to government mandates. Notably, claims for the ERC were available for qualified wages paid between March 12, 2020, and December 31, 2021. While the program has concluded, it’s not too late for some businesses to discover their eligibility and pursue legitimate claims. However, a word of caution: steer clear of third-party services promoting improper ERC claims, as these can result in hefty financial penalties and legal trouble.
What is the ERC?
The ERC was a tax credit available to eligible employers who kept employees on their payroll during the pandemic. It was enacted in March 2020 and remained in effect through December 31, 2021. There were three main criteria for eligibility:
- Full or partial shutdown due to COVID-19 government orders: This applied to businesses forced to close by government mandate during 2020 or the first three quarters of 2021.
- Significant decline in gross receipts: Businesses that experienced a substantial drop in revenue compared to 2019 during the same period were also eligible.
- Recovery startup business: This category applied to certain new businesses that began operating after February 15, 2020, and met specific size and revenue requirements.
Why be wary of third-party ERC claim services?
Unfortunately, some third-party services are misrepresenting the eligibility requirements and aggressively promoting ERC claims to businesses that may not qualify. These promoters often charge hefty upfront fees or take a percentage of any recovered funds, regardless of whether the claim is legitimate.
The Rise of Improper ERC Claims
Unfortunately, some unscrupulous third-party services are targeting businesses, particularly small businesses, with misleading information and aggressive tactics to promote ERC claims. These services often:
- Make exaggerated or false promises about eligibility: They may assure businesses they qualify for the ERC regardless of their actual circumstances.
- Charge exorbitant upfront fees or contingent fees: These fees can be a significant financial burden, even if the claim is ultimately unsuccessful.
- Pressure businesses into making quick decisions: They may use high-pressure sales tactics to rush businesses into signing contracts before they fully understand the risks involved.
- Lack transparency about the complexities of the ERC: They may downplay the eligibility requirements and compliance obligations, leaving businesses vulnerable to penalties and interest if their claims are found to be inaccurate.
Protecting Your Business
It’s crucial for businesses to be cautious and conduct thorough due diligence before engaging with any third-party service offering ERC assistance. Here are some key steps to protect yourself:
- Understand the eligibility requirements: Carefully review the official IRS guidance on ERC eligibility to ensure you meet the qualifications before pursuing a claim.
- Beware of upfront or contingent fees: Reputable professionals typically charge reasonable hourly or fixed fees, not percentages based on the potential refund.
- Get everything in writing: Ensure you have a clear written contract outlining the scope of services, fees, and potential risks involved before engaging any service provider.
The ERC was a valuable program for many businesses, but it’s crucial to approach claiming it with caution. Avoid the pitfalls of improper ERC claims by understanding your eligibility, seeking professional guidance, and avoiding third-party services with misleading practices. By taking these steps, you can protect your business from financial and legal repercussions and ensure you receive the tax relief you deserve if you qualify for the ERC.