What is the IRS moratorium on ERC?
Despite reports that the IRS is “halting” or “shutting down” the ERC, the IRS will continue to accept new ERC claims through the statutory deadlines. The IRS is merely saying that they are applying increased scrutiny to all claims in process, and therefore, new claims will not be addressed before the end of 2023.
Should You Claim the Employee Retention Credit?
Small businesses looking to take advantage of the Employee Retention Credit (ERC) must first assess whether it is appropriate for them to pursue. This is done by carefully reviewing all eligibility requirements and closely following IRS guidance.
The ERC process can feel overwhelming to understand and cumbersome to manage. That’s why Experian tax credit experts are here to help your business navigate the complex ERC landscape every step of the way.
What is the ERC?
The Employee Retention Credit is a refundable payroll tax credit introduced by the federal government and is intended to provide financial relief to employers who were adversely affected by the pandemic, either based on a significant decline in revenue or due to government orders restricting business activity. The tax credits are calculated as a percentage of qualified wages that were paid after March 12, 2020, and before October 1, 2021.
Due to a variety of factors, many employers have not claimed the ERC. One impediment to claiming the ERC has been confusion regarding the ERC and the Paycheck Protection Program (PPP). At first, employers were not allowed to claim both the PPP loan and the ERC. This rule was later reversed, allowing employers to claim credits on qualified wages to the extent they were not included in PPP loan forgiveness calculations. Eligible employers can retroactively apply for the tax credit if they failed to do so during the initial period.
Employers retroactively filing for the ERC should be aware of the risks involved and ensure they fully develop their facts with a partner that has the appropriate resources and qualifications an employer can rely on. Employers should also make sure their provider is prepared for an IRS audit in advance with the appropriate documentation ready.
Current Risk Environment Associated with ERC
The IRS has been warning employers of the many ERC scam promotions present in the market. They are advising employers to be wary of aggressive ERC ads that encourage businesses to apply even if it is not appropriate to do so due to ineligibility. Because of this influx of ERC scams, it is imperative to choose the right advisor who can help you assess your eligibility, understand limitations to eligibility, and educate you about income tax implications. At Experian, we’re aware of heightened scrutiny the IRS has placed on the ERC program and are committed to acting responsibly on behalf of all organizations we speak with.
Understanding ERC Eligibility Requirements
Only employers who meet certain criteria articulated in the CARES Act and clarified by the IRS should consider applying. For a robust understanding of ERC eligibility requirements, it is best to connect directly with a tax credit expert to discuss eligibility within the context of your specific circumstances. However, here is a brief overview on eligibility requirements:
Employers could be eligible to receive the ERC for 2020 if their trade or business experienced either:
- A full or partial suspension of the operation of their trade or business due to governmental orders limiting commerce, travel, or group meetings due to the COVID-19 pandemic; or
- A decrease in gross receipts of at least 50% compared to the same quarter in 2019.
The credit for 2020 is 50% of up to $10,000 of qualified wages per employee paid during the period of eligibility, or up to $5,000 per employee.
ERC eligibility requirements were revised in 2021. Starting Jan. 1, 2021, eligible employers were those who operated a trade or business during 2021 and experienced either:
- A full or partial suspension of the operation of their trade or business due to governmental orders limiting commerce, travel, or group meetings due to the COVID-19 pandemic; or
- A decrease in gross receipts in the first, second, or third quarter of 2021, of at least 20% compared to the corresponding quarter of 2019.
For 2021, the credit is 70% of up to $10,000 of qualified wages paid during each calendar quarter of eligibility, or up to $21,000 per employee.
The IRS describes a partial suspension of operations as either:
- the suspension of more than a nominal portion of business operations; or
- Government-ordered modifications that had a more than nominal effect on business operations.
Understanding the eligibility requirements is crucial, as anyone who improperly claims the credit must pay it back and may owe penalties and interest.
Navigate the ERC With Confidence
Experian Employer Services is a national leader in tax credit services.
With 25 years of experience in state and federal employment-based tax incentive programs, you can be confident in choosing Experian as the right ERC advisor for your business.
Our tax credit experts will help:
- Develop an understanding of the employer’s facts to determine potential eligibility.
- Gather data and documentation to support eligibility.
- Assess eligibility based on applicable data and documentation.
- Calculate credits for applicable periods and entities and reconcile ERC with other credits to avoid double benefits by using appropriate data and documentation.
- Prepare a final deliverable with the appropriate calculations, explanations, and support of the credit, including an explanation of income tax implications.
- Assist with the monetization of the credit.
- Support any IRS examination as necessary.
Make sure you reach the best decision about whether or not your business should claim the ERC based on your individual facts and circumstances. Reach out to an Experian tax credit expert today!
ERC FAQs & Resource Center
No, the ERC is available to employers who staffed full-time and part-time employees in 2020 and/or 2021. Regardless of employment type, the ERC tax credit can only be applied to qualified wages and health plan costs made to employees during the period of eligibility.
Yes, if you were an eligible employer who maintained operations during the COVID-19 pandemic and met the eligibility requirements, you can apply for the ERC tax credit until the statute of limitations (April 15th, 2024 for credits earned in 2020 and April 15th, 2025 for credits earned in 2021). We recommend clients start the process early, as the process of determining eligibility, fully documenting such eligibility, performing the credit calculations, and amending payroll tax and income tax returns often takes several months.
No, the ERC is refundable tax credit and does not have to be repaid by eligible employers. However, if an employer improperly claims the ERC, the employer may have to pay the credit back with interest.
The process of determining eligibility depends on the facts and circumstances of your business as well as other businesses under common ownership (your “Controlled Group.”) There are many factors that can cause qualification or disqualification of a taxpayer for part or all potential periods of eligibility. This process may take weeks or months depending on the level of complexity and availability of applicable data and documentation. Many businesses that sign up for our services are ultimately determined to be ineligible after our full review.
Busted: Don’t Fall for these Top 5 ERC Myths
Are you struggling to maximize your ERC? Join Adam Taplinger and Matt Kelley for a webinar where they will bust 5 myths about claiming the ERC. Make sure you haven’t fallen for one of these and learn to avoid common misconceptions to maximize your credit.
Should You Claim the ERC?
Small businesses looking to take advantage of the Employee Retention Credit (ERC) must first assess whether it is appropriate for them to pursue. This is done by carefully reviewing all eligibility requirements and closely following IRS guidance. This webinar provides overview on ERC eligibility requirements and mistakes to avoid, including how to choose the right advisor to help you throughout the complex ERC process.
Claiming the ERC for Staffing Agencies
This webinar with Experian Employer Services, TempWorks, and Horizon Staffing will review misconceptions that can cause employers to miss out on the ERC and explore a staffing agency’s pathway to potential eligibility. Join to learn how your staffing agency can benefit from this important tool for financial recovery.
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