IRS Issues New Employee Retention Tax Credit Warning
The IRS is warning employers to be cautious of scammers advising businesses to claim the Employee Retention Credit when they may not qualify.
The tax credit program was established to help businesses that shut down during the pandemic, but continued to pay employees.
Officials said scammers are promoting ERC opportunities and charging large fees upfront that are contingent on the amount of a refund.
Often, officials are finding the schemers do not inform taxpayers that wage deductions claimed on federal income tax returns must be reduced by the amount of the tax credit.
IRS officials originally issued a warning in October, but said they are continuing to see a number of attempts to claim the ERC credit during this 2023 tax season.
Businesses that improperly claim the tax credit could have to repay the funds along with penalties and interest.
“While this is a legitimate credit that has provided a financial lifeline to millions of businesses, there continue to be promoters who aggressively mislead people and businesses into thinking they can claim these credits,” acting IRS commissioner Doug O’Donnell said.
O’Donnell said third parties are aggressively promoting ERC schemes through various communication channels.
The IRS is auditing and conducting criminal investigations related to the claims.
“People need to think twice before claiming this,” O’Donnell said.
Officials say if a business filed an income tax return deducting qualified wages before it filed an employment tax return claiming the credit, the business should file an amended income tax return to correct any overstated wage deduction.
What Is the ERC?
Included in the 2020 Coronavirus Aid, Relief, and Economic Security Act Act, the tax credit was designed to help companies and organizations that retained employees throughout the pandemic.
Congress made the ERC a refundable payroll tax credit so the IRS could send a refund greater than the amount of payroll taxes paid to the IRS.
There are generally two ways to qualify for the ERC.
IRS Office of Professional Responsibility officials are working on guidance for tax professionals to help navigate the recent schemes.
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