If you’ve watched TV or listened to the radio at any point over the last two years or so, you’ve heard of the Employee Retention Credit. Many third-party companies are advertising that they can get you $26,000 per employee in the form of a credit on your payroll tax returns. While that is certainly possible, many of the companies advertising the service aren’t telling the whole story.
The Employee Retention Credit isn’t automatic. There are several eligibility requirements that must be met in order to claim the credit and, not surprisingly, they’re a bit complicated. These third-party companies are claiming credits for businesses when they aren’t eligible. The result is that businesses then have to repay the credits WITH penalties and interest.
These third-party companies often charge large upfront fees or are paid a fee contingent upon the amount of the refund. They aren’t being diligent (on purpose or by accident, who really knows?) about ensuring businesses meet the eligibility requirements. There are also actual scams related to the credit that are making the rounds. Scammers are contacting businesses claiming to be the IRS or other government agency and have been successful in convincing business owners to pay them to file for ERC, taking the money without providing a service at all.
A credit that was meant to help businesses stay afloat during the pandemic has for many become the reason they have closed their doors.
What are some red flags to look out for when seeking help with the ERC?
1—The company has marketing materials that makes promises about refund amounts without knowing anything about the businesses they’re marketing to.
2—The company proposes to file your return for you when you already outsource your payroll to another company.
3—They project refund figures that are higher than your total payroll. This a play on your emotions in an effort to take advantage of you.
4—They make determinations on eligibility without knowing anything about your company structure, employees, and any other circumstances.
5—Fees are based on a percentage of a projected refund amount that is substantially inflated.
It’s important to remember that even if you hire someone to prepare a return for you, whether it’s a personal return or business return, YOU are responsible for the information on that return. If there’s an issue, YOU are the one the IRS will be looking for and not your preparer. This is why it’s imperative that you vet your tax professional to make sure they are someone with the appropriate knowledge and experience to prepare your returns.
If you have questions or need help with a tax problem, you can connect with me using the chat feature on my website or by scheduling an appointment.