Employers should be wary of third parties advising them to claim the Employee Retention Credit (ERC) when they may not qualify, according to the IRS. (IR 2022-183, 10/19/2022)
As described by the agency, the ERC is a refundable tax credit designed for businesses that continued paying employees while the businesses were shut down due to the COVID-19 pandemic or had significant declines in gross receipts from March 13, 2020, to December 31, 2021.
Some third parties are taking improper positions related to taxpayer eligibility for and computation of the credit,” the agency said.
“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 return must be reduced by the amount of the credit,” the IRS explained.
There are situations in which a business may have filed an income tax return deducting qualified wages before it filed an employment tax return claiming the credit. In such instances, the business should file an amended income tax return to correct any overstated wage deduction, the IRS said.