Will I get Audited for Claiming ERC?
As a business owner, you may have heard of the Employee Retention Credit (ERC) program, a tax credit introduced by the U.S. government in response to the COVID-19 pandemic to help eligible employers keep their employees on payroll. The ERC program has provided much-needed financial relief to businesses across the nation, but as with any tax credit, there may be concerns about the possibility of being audited. In this blog, we’ll take a closer look at the chance of being audited for the ERC program and provide insights to help you navigate this tax credit with confidence.
Understanding the ERC Program
First, let’s recap what the ERC program is all about. The Employee Retention Credit was established under the CARES Act in March 2020 and has since been expanded and extended by subsequent legislation, including the Consolidated Appropriations Act and the American Rescue Plan Act. The ERC is designed to encourage businesses to retain employees during the COVID-19 pandemic by offering a refundable tax credit against certain employment taxes. Eligible employers can claim a credit of up to 70% of qualified wages, with a maximum credit of $5,000 per employee per quarter for 2021 and $7,000 per employee per quarter for 2020.
The ERC program has specific eligibility criteria, including requirements related to revenue decline, government-mandated shutdowns, and the size of the business, among others. To claim the ERC, employers must file Form 941, the Employer’s Quarterly Federal Tax Return, or Form 7200, the Advance Payment of Employer Credits Due to COVID-19, with the Internal Revenue Service (IRS).
The Chance of Being Audited for ERC
As with any tax credit or deduction, there is always a chance of being audited by the IRS. However, the likelihood of being audited for the ERC program is not explicitly known, as the IRS does not disclose specific audit rates for individual tax credits. The IRS uses a variety of factors and risk assessment techniques to select returns for examination, and audits are generally conducted to ensure that taxpayers have accurately reported their tax liability and complied with tax laws.
It’s worth mentioning that the IRS has been prioritizing enforcement efforts related to tax credits and deductions, including the ERC, to ensure that taxpayers are correctly claiming them. The ERC program has specific documentation requirements, and employers are required to retain records that support their eligibility for the credit for at least four years after the date the tax becomes due or is paid, whichever is later. Failure to maintain proper documentation or inaccurately claiming the ERC could increase the risk of being audited.
Reducing the Risk of an ERC Audit
While the exact odds of being audited for the ERC program are unknown, there are steps you can take to reduce your risk of being audited and ensure compliance with IRS guidelines.
- Understand the Eligibility Requirements: Familiarize yourself with the eligibility criteria for the ERC program and ensure that you meet all the requirements before claiming the credit. Double-check that you have experienced the required revenue decline or qualified government-mandated shutdown, and that you meet the size criteria for your business.
- Keep Accurate Records: Maintain detailed and accurate records that support your eligibility for the ERC. This includes records related to your business’s revenue, payroll, and other relevant financial information. Retain these records for at least four years, as required by the IRS.
- Seek Professional Assistance: The ERC program can be complex, and it’s advisable to seek professional assistance from a qualified tax professional or accountant to ensure that you are accurately claiming the credit and complying with IRS guidelines. A tax professional can help you navigate the requirements and ensure that you are in full compliance with the tax law.
Free Audit Defense
In the event that an audit does occur, Biz Head Law has got your back. We offer free audit defense with every claim we file. You can rest assured that if we file the claim for you, we stand behind our work.
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With the help of the tax attorneys at Biz Head Law, businesses can quickly determine if they are qualified for this powerful incentive. In just 10 minutes or less, they are also provided with an estimate, which can be up to $7,000 per quarter for each of the first three quarters of 2021 and up to $5,000 for 2020 for a total of $26,000 per full-time W2 employee under the CARES Act.
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