On October 19, the Internal Revenue Service (News Release IR-2022-183) warned employers to be wary of third parties who are advising them to claim the Employee Retention Credit (ERC) for 2020 and/or 2021 when they may not qualify. Some third parties are advising taxpayers to take improper positions related to taxpayer eligibility for and computation of the credit.
These third parties often charge large upfront fees or a fee that is contingent on the amount of the refund and may not inform taxpayers that wage deductions claimed on the business’ federal income tax returns must be reduced by the amount of the credit. If the business filed an income tax return deducting qualified wages before it filed an employment tax return claiming the credit, the business should file amended income tax returns to correct any overstated wage deduction.
Businesses are encouraged to be cautious of advertised schemes and direct solicitations promising tax savings that are too good to be true. Taxpayers are always responsible for the information reported on their income and employment tax returns. Improperly claiming the ERC could result in taxpayers being required to repay the credit along with penalties and interest.
For more information about the ERC please see Bauman Associates’ June 2021 explanation at https://baumancpa.com/employee-retention-tax-credit-ertc/ and information on the IRS website at https://www.irs.gov/newsroom/employee-retention-credit-2020-vs-2021-comparison-chart.