If someone has advised you about ERC i.e Employment Retention Credit that government launched as an incentive during Covid-19 period of 2021 , you better first listen to what IRS is warning business people about this credit claim. I am sure the warning by IRS has a tone that suggest this Employment Retention Credit claim may be inserted in its system for IRS audit triggers. Why ? IRS has knowledge about many fraudsters are enticing business people for ERC claims against hefty cut out of the refund.
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Latest IRS Warning
This is not the first warning by The IRS on the issue of improper claim of ERC or Employment Retention Credit . The latest warning came on 7th March 2023 which says as under :
“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,” said Acting IRS Commissioner Doug O’Donnell. “Anyone who is considering claiming this credit needs to carefully review the guidelines. If the tax professional they’re using raises questions about the accuracy of the Employee Retention Credit claim, people should listen to their advice. The IRS is actively auditing and conducting criminal investigations related to these false claims. People need to think twice before claiming this.”
People and businesses can avoid this scheme, and by not filing improper claims in the first place. 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 an amended income tax return to correct any overstated wage deduction.
Businesses should 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 tax returns. Improperly claiming the ERC could result in taxpayers being required to repay the credit along with penalties and interest.
What is ERC?
The Employee Retention Credit or ERC (in short) is a refundable tax credit created by the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which was signed into law in March 2020. The credit was subsequently modified and extended by several other pieces of legislation, including the Consolidated Appropriations Act, 2021, and the American Rescue Plan Act of 2021.The purpose of ERC was to encourage businesses to retain their employees during the COVID-19 pandemic. The credit is available to eligible employers who either had to partially or fully suspend their operations due to government orders related to COVID-19 or experienced a significant decline in gross receipts.
Is ERC still available in the year 2023?
The Employee Retention Credit has already expired, but employers can take advantage of the ERC if they were qualified to claim the credit during the period it was applicable , but for any reason you did not claim .
Employers that have yet to file for the credit may file for a retroactive ERC refund. To apply, employers must submit one of two 941-X forms: Adjusted Employer’s Quarterly Federal Tax Return Form or Claim for Refund Form.The Employers must explain the reason for the delay in ERC claim and must use a separate Form 941-X for each business quarter that needs correction or adjustment.
But claim only if you satisfy all the rules of claim and there was a. genuine reason for delay in filing the claim .Lastly , follow what the IRS is warning again and again as stated below:
“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 an amended income tax return to correct any overstated wage deduction.”
How much credit can be claimed under ERC ?
Eligible employers can claim the ERC on their quarterly employment tax returns, which includes Form 941. The credit is calculated based on a percentage of qualifying wages paid to employees during the eligible period. The total ERC claim per employee can be up to $26,000 ($5,000 in 2020 and $7,000 per quarter through Q3 in 2021).
How to claim ERC ?
To claim the ERC, eligible employers must meet certain requirements and complete the necessary documentation. This includes demonstrating a decline in gross receipts or a partial or full suspension of operations due to COVID-19, and identifying which employees qualify for the credit.
Employers can claim this credit by simply filling out Form 941-X when filing for their federal tax returns. In the form, employers must answer the relevant questions in all three pages and sign the form on Page 5.Also amend your federal tax return for the relevant period and amend the wage deduction
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