Employers who claimed the Employee Retention Credit (ERC) on their tax returns last year may still face scrutiny from the Internal Revenue Service (IRS). The IRS has announced that it will audit some of these claims to ensure that employers met the eligibility requirements and correctly calculated the credit.
The ERC was a tax credit available to employers impacted by the COVID-19 pandemic and had to either fully or partially suspend their operations or experience a significant decline in revenue. The credit was equal to 50% of qualified wages paid to employees up to a specific limit.
According to the IRS, some employers may have claimed the credit improperly by not meeting the eligibility requirements or by miscalculating the credit amount.
For example, some employers may have claimed the credit even though they did not experience a significant decline in revenue or did not fully or partially suspend their operations.
Employers audited and found to have claimed the credit improperly may have to pay back the credit plus interest and penalties.
In some cases, the IRS may also impose additional penalties for negligence or fraud.
To avoid facing an audit or penalties, employers who claimed the ERC should ensure they met the eligibility requirements and correctly calculated the credit amount.
They should also maintain documentation to support their claims, such as records of revenue declines and evidence of operational suspensions.
Employers with questions about the ERC or needing assistance with claiming the credit can consult with a tax professional or visit the IRS website for more information.
You can always schedule a call to speak to a tax professional about your situation.