Short answer, no.
ERC (Employee Retention Credit), also known as ERTC (Employee Retention Tax Credit), is a very real tax credit offered by the IRS.
You can search on the Internet for ERC or ERTC and click on the links to irs.gov to see that this is real. This tax credit was also featured on the front page of the New York Times on May 27, 2023.
ERC is very complex and requires Expert ERC CPA’s to file your amended tax return. There are many legitimate ERC firms that use expert CPAs, however, it’s important to note that there are a lot of last-minute ERC firms who have popped up and joined the bandwagon to cash in. Many of these firms are misleading their clients and telling them they qualify for ERC when they don’t. These firms are making clients pay a fee for filing up-front so they get their money before you get yours from the IRS. In addition, working with these firms can cause you to get audited by the IRS, and you risk having to pay back not only your refund amount, but additional interest in fees.
It’s imperative that you do your due dilligence when hiring a firm to see if your business qualifies for this credit.
Understanding these factors will help you make an informed decision about which CPA firm to hire and how much you should expect to pay for their services.
What to look for in an ERC Firm:
There are several factors you should look into before hiring an ERC firm:
- Make sure their CPA is willing to sign Form 941-X. IRS Form 941-X is the “Adjusted Employer’s QUARTERLY Federal Tax Return or Claim for Refund”. If they are unwilling to sign this form, that is a red flag. By signing this form, the CPA is attesting that they stand by the refund amount you are getting, and are willing to answer to the IRS in case of an audit.
- Verify the firms’ CPAs are calculating the refund numbers based on the IRS’s tax code, and not just entering numbers into a cookie-cutter spreadsheet. Many last minute firms are just plugging in numbers to a spreadsheet to tell you that you qualify. There is way more to calculating your ERC than that.
- Make sure the firm is not asking for their fee up-front. You should go with a firm that doesn’t get their preparation fee before you get your refund. This isn’t to say that every firm that offers you an option to pay up front is fraudulent, but make sure there is also an option that no one gets paid until you receieve your refund.
- Check that the firm doesn’t only qualify you on loss-of-profit. There are many other factors that go into the qualification process such as supply-chain dispruptions, limits on operational capacity, work from home orders, lack of PPE supplies, etc.
- Be leary of firms that say they can get you funding in a very short timeframe such as several days or weeks. There are legitimate firms that offer “Bridge Loans” which allow you to borrow money in anticipation of receiving your refund from the IRS. But if a firm is offering funding in 48 hours, they are most likely not a legitimate ERC firm.
Why haven’t I heard about ERC until recently.
When the PPP (Paycheck Protection Program) was available with the CARES (Coronavirus Aid, Relief, and Economic Security Act) Act of 2020, CPAs had a choice of filing for PPP or ERC. ERC is very complex and requires ERTC Experts, while the PPP was very simple. And if you got PPP you weren’t able to file for ERTC. In March of 2021, Congress voted on The American Rescue Plan Act of 2021. This legislation changed the rules so that even businesses who already received PPP could now file for ERC. Many broad-spectrum CPAs weren’t even aware that the rules had changed, and day-to-day CPAs most likely didn’t know how to process the ERC, since it’s very complex and requires reading through pages and pages of legislative documents. Firms that have been in business since ERC became available took the time to learn the tax code inside and out.
When is the filing dealine for ERC?
April 15, 2024 is the deadline to file for 2020.
April 15, 2025 is the deadline to file for 2021.
You should file for both 2020 and 2021 by the 2024 deadline. If you wait until 2025 to file, you will forfeit any refund amount you may have been eligible for in 2020. And just because the deadline to file is still a bit off in the distance, the time to file is now. IRS processing times are only getting longer and longer as more and more businesses become aware of the Tax Credit. As of today, processing times can already take 6-12 months, and will continue to take longer as the IRS becomes more inundated with all the returns to process.
Will ERC money run out?
No, ERC funds are not a pool of COVID-relief money. ERC is a Payroll Tax Refund…you’re amending your tax return to receive payroll taxes you already paid in. The ERC is the Government’s way to reward you for keeping employees on your payroll during COVID.
Conclusion
So yes ERC is real, and can be a lifeline to a struggling business owner. Many small-business owners have saved their business by getting this well-deserved refund, which, unlike PPP, you don’t have to pay back. Take advantage of the Government’s offer to help you recover funds your business may have lost due to COVID. You helped your employees by keeping them on your payroll, let the Government help you before it’s too late