The IRS Warns Businesses About 7 ERC Red Flags

Beth Dean 02.22.24
Graphic - Blog 2024-02-22 ERC Red Flags

Be Aware of These Red Flags For Incorrect Employee Retention Credit (ERC) Claims

The IRS is urging businesses that claimed the ERC pandemic-era credit to review their eligibility as a key deadline approaches. 

Here are 7 ERC red flags to watch out for that could delay your claim:

  1. Claiming for too many quarters: Qualifying for all quarters is uncommon. Review your eligibility for each quarter carefully.
  2. Government orders that don’t qualify: Not all government orders qualify. Check if the order fully/partially suspended your operations due to COVID-19 and was a government order, not just guidance.
  3. Too many employees and wrong calculations: Avoid claiming for all employees or using the same credit amount across periods. Review calculations and wage qualification rules.
  4. Citing supply chain issues: Supply chain disruptions alone don’t qualify. Ensure your supplier’s government order meets the requirements.
  5. Claiming for too much of a tax period: If your suspension was partial, you can only claim for the affected period, not the entire quarter.
  6. No wages paid or business didn’t exist: You can only claim for periods with employees and an employer ID number.
  7. Promoter says “nothing to lose”: Be wary of promoters downplaying potential penalties and interest for incorrect claims.

Nextep Clients:

Nextep makes it easy by handling this process for our clients! 

As a CPEO, Nextep files the ERC for clients if you were with us during the quarters you are claiming the credits (2020 and 2021). All you need to do is tell us whether you qualified for the credit, submit your calculated qualified wages and calculated credits to us, and we can take it from there.

Businesses with incorrect claims filed after Dec. 21, 2023 can withdraw the claim to avoid penalties and interest. We can help with that process as well.

“We’re passionate about our clients getting their ERC claims as quickly and smoothly as possible. We’re hopeful and thankful that these red flags from the IRS can help our clients avoid any delays in properly claiming the ERC relief that is available to them under the law,” says Nextep’s Director of Payroll Tax, Robbie Barclay.

Additional Resources:

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