Employee Retention Credit
IRS Puts Immediate Stop to New ERC Claims
To protect taxpayers from employee retention credit (ERC) scams that pose an unacceptable risk to businesses and the tax system, the IRS has halted the processing of new ERC claims until at least January 2024. The agency said the moratorium is necessary due to a surge in questionable claims, the concerns of tax professionals, and the continued aggressive marketing of the credit to ineligible taxpayers. The IRS will continue processing and paying ERC claims received prior to the moratorium, but noted that increased scrutiny of the claims will result in longer processing times.
The IRS also issued a warning to businesses to be on the lookout for the “wildly aggressive” marketing of misleading or improper ERC claims targeting ineligible taxpayers. The warning was accompanied by a printable version of its ERC checklist that tax preparers can use to explain eligibility for the credit to their clients.
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What is the Employee Retention Credit?
The Employee Retention Credit (ERC) – sometimes called the Employee Retention Tax Credit or ERTC – is a refundable tax credit for businesses and tax-exempt organizations that had employees and were affected during the COVID-19 pandemic.
The requirements are different depending on the time period for which you claim the credit. The ERC is not available to individuals.
How does it work?
Effective for the period beginning after March 12, 2020 through December 31, 2020, employers can receive a credit equal to 50% of up to $10,000 of qualified wages ($5,000 maximum credit per employee per year). Eligible employers are those who partially or fully shut down due to orders from an appropriate government authority for COVID-19 reasons, or employers with gross receipts less than 50% of gross receipts for the same calendar quarter in 2019.
Effective for the period beginning after December 31, 2020, through September 30, 2021, employers can receive a credit equal to 70% of up to $10,000 of qualified wages per quarter ($7,000 maximum credit per employee per calendar quarter). Eligible employers are those who partially or fully shut down due to orders from an appropriate government authority for COVID-19 reasons, or employers with gross receipts less than 80% of gross receipts for the same calendar quarter in 2019. Eligible employers also include recovery startup businesses. Certain alternative quarter elections apply for purposes of the 80% gross receipts test.
This credit is issued by the IRS and is subject to the IRS backlog.
Recovery start-up businesses
Recovery starts up business: Qualify for the last two quarters of 2021 3rd and 4th (July 1, 2021 t Dec 31st, 2021).
Recovery startup business. A recovery startup business is one that began carrying on a trade or business after February 15, 2020, and has average annual gross receipts of $1 million or less during the period the business is in existence.
A recovery startup business is defined as an employer that does not meet the suspension of operations test or the 80% of gross receipts test. Thus, the law allows any business that first began operations after February 15, 2020, with less than $1 million annual gross receipts to claim the Employee Retention Credit for wages paid during the applicable calendar quarters, assuming other applicable rules are met.
ERC Eligibility – Alternative quarter – If one quarter is eligible the next quarter is automatically eligible. The immediately preceding quarter rule