Is the Employee Retention Tax Credit (ERC) a Scam?

ANSWER: NO. The ERC is a refundable payroll tax credit available to businesses and tax-exempt organizations which are considered an “eligible employer” who paid qualified wages from March 13, 2020, through September 30, 2021 pursuant to Section 2301 of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) and its subsequent amendments and expansions.

It is important to note that the IRS warns about ERC scam promotions that advise Employers to “apply” for money by claiming the ERC when they may not qualify. The IRS warns that anyone who improperly claims the credit has to pay it back and may owe penalties and interest.

Who is an “eligible employer” for the ERC?

ANSWER: Generally, an “eligible employer” is:

1) a business in operation during 2020 (or the first three quarters of 2021),

2) who paid wages to employees,

3) that experienced either: (a) a full or partial suspension, OR (b) a significant decline in gross receipts.

What’s a significant decline in gross receipts?

ANSWER:

For 2020: gross receipts for any 2020 quarter are less than 50% of the gross receipts in the same calendar quarter in 2019.

For 2021: gross receipts for any 2021 quarter are less than 80% of the gross receipts in the same calendar quarter in 2019.

What is a full or partial suspension?

ANSWER:

Due to government orders during the pandemic your business experienced at least a 10% reduction in ability to perform services or 10% of your business was shut down.

Conclusion:

If you’re claiming the ERC based on a full or partial suspension, you should be able to explain why your business meets the IRS 10% safe harbor to minimize the risk of losing your credit.