ERC Update
If you are a business owner, I am sure you are still getting blasted with phone calls, emails and radio ads, on how you can easily get up to $26,000 per employee due to the Employee Retention Credit (ERC). The link below has more information on ERC that we shared previously but here are a few updates and words of caution on this topic:
- Congress and the IRS are becoming increasingly concerned about this program being abused. The on-going budget talks and potential government shutdown has added to the concern and focus on ERC abuse. They are also discussing possibly ending this program early to limit further exposure to abuse.
- Quote from IRS Commisioner Danny Werfel at the IRS National Tax Forum
“The amount of misleading marketing around this credit is staggering, and it is creating an array of problems for tax professionals and the IRS while adding risk for businesses improperly claiming the credit,” Werfel said. “A terrible scenario is unfolding that hurts everyone involved -- except the promoters.”
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As a reminder, if you received an ERC rebate, it is essentially taxable. The mechanics to do this involve amending the 2020/2021 returns to decrease the labor expense taken by the amount of the ERC rebate received (net of fees paid to file for ERC).
- For planning purposes, review your 2020/2021 returns for your marginal federal tax rate and add 4.5% to that (for CO tax impact) to estimate the potential tax impact of the ERC rebate received.
- We have started the process of amending returns for those clients that have received all ERC rebates expected.
- The IRS has essentially worked through the backlog of amended 941's for the ERC. As a result, they plan to divert more resources to now auditing ERC's previously processed for possible fraud/abuse and will focus on 3 main areas of concern
- Taxpayers that were not entitled to the ERC rebate under the "Government Order Suspension" test;
- Taxpayers that claimed the ERC rebate but did not properly offset for PPP or RRF funds they had already received;
- Taxpayers that received ERC rebates but have not filed amended 2020 or 2021 returns for the tax impact of ERC (this will likely be a 2024 focus depending on when you recieved the ERC rebate).
- The link below contains an IRS Memo with additional insights on this topic.
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