There are only two weeks remaining for taxpayers to file amended tax returns and take advantage of the Employee Retention Credit for the 2020 fiscal year.
Created by the CARES Act, the IRS says the Employee Retention Credit is a refundable tax credit for businesses that continued to pay employees while shut down due to pandemic, or had significant declines in gross receipts from March 13, 2020, to Dec. 31, 2021. Eligible employers can claim the ERC on an original or adjusted employment tax return for a period within those dates, the IRS says, by completing Form 941X for either fiscal year (amended tax returns for 2021 are required to be refiled by April 15, 2025).
With the deadline to file amended returns now looming, the IRS earlier this month released a statement warning taxpayers to be careful of schemes related to the ERC and offered guidance on how businesses can determine their eligibility. The agency warned of radio and online schemes where promoters charge large fees upfront that are contingent on the refund amount. The IRS also noted promoters may not inform taxpayers that wage deductions claimed on the business' federal income tax return must be reduced by the amount of the credit.
"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. Anyone who is considering claiming this credit needs to carefully review the guidelines," wrote IRS Acting Commissioner Doug O'Connell.
He added, "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."
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In order for businesses to qualify for the credit, the IRS states employers must have:
- Sustained a full or partial suspension of operations due to orders from an appropriate governmental authority limiting commerce, travel or group meetings due to COVID-19 during 2020 or the first three quarters of 2021,
- Experienced a significant decline in gross receipts during 2020 or a decline in gross receipts during the first three quarters of 2021, or
- Qualified as a recovery startup business for the third or fourth quarters of 2021.
The IRS also notes "only recovery startup businesses are eligible for the ERC in the fourth quarter of 2021. Additionally, for any quarter, eligible employers cannot claim the ERC on wages that were reported as payroll costs in obtaining PPP loan forgiveness or that were used to claim certain other tax credits."
To learn more about the ERC, eligibility and filing guidelines, please go to the IRS website.