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IRS Warns Employers to Beware of Companies Promoting ERC Services

October 27, 2022

Attention employers…the IRS is warning you to beware of third parties improperly advising you to claim the employee retention credit (ERC) even if you do not qualify. Here’s what you should watch out for.

Employers…have you been approached by a third party advising you to claim the Employee Retention Credit (ERC)? The IRS is warning businesses to be cautious of offers like this. Here’s what you should know.

What is the ERC?

The Employee Retention Credit (ERC) was created under the CARES Act to provide financial relief to employers who kept workers on the payroll during the COVID-19 pandemic. Subsequent legislation expanded and extended the ERC through 2021.

Who is eligible?

Generally, to be eligible for the credit, employers must have experienced one of the following items:

  1. A Company was subject to a qualified government shut down order – (ex. Nearly all Restaurants from March 2020 through May 2021)
  2. A Company had a Gross Receipts drop compared to 2019:
    a) Companies that had a Gross Receipts drop of greater than 50% in a calendar quarter during 2020 compared to the same quarter in 2019
    b) Companies that had a Gross Receipts drop of greater than 20% in a calendar quarter compared to same calendar quarter in 2019
    -This should be examined for the following calendar quarters – 4th quarter 2020 (alternative method), first three quarters of in 2021
  3. Entities that qualify as recovery startup businesses for the third and fourth quarters of 2021.

Additionally, other eligibility criteria must be met to claim the ERC. These items include analyzing a Company’s 2019 average full time employee count, assessing aggregation of related entities, and determining wages eligible for the credit (note: owners and their relatives wages or wages used to obtain PPP forgiveness are not eligible).

What is the IRS warning employers to watch out for?

The IRS is warning employers to be cautious when faced with an ERC offer from a third party company. Certain companies are advising applicants they may be eligible for the ERC while relying on improper eligibility positions and criteria. Additionally, these companies will charge large fees due up front.

What’s at stake if you improperly claim the ERC?

The IRS is warning employers that improperly claiming the ERC could put them on the hook to repay the credit, and pay penalties and interest on top of it. Offers that promise tax savings that seem too good to be true are likely money-making schemes—stay vigilant!

Questions? Contact us.

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