How to Protect Your Business from ERC Scams
As tax regulations are constantly changing and evolving, small business owners must stay up to date on the latest terms and procedures. Among these ever-changing tax benefits is the Employee Retention Credit (ERC). While the ERC has proven to provide significant financial relief for eligible employers, it has also opened the door for scammers to take advantage of business owners who are seeking assistance to claim this tax benefit.
As a trusted payroll partner, we are here to help safeguard your business from these fraudulent practices. Read the tips below to help you stay vigilant and protect your small business from these ERC scammers.
What is the Employee Retention Credit (ERC)?
The Employee Retention Credit (ERC) is a refundable tax credit for employers who retained employees on their payroll during the COVID-19 pandemic. The credit was created in March 2020 by the Coronavirus Aid, Relief, and Economic Security (CARES) Act and was expanded by subsequent legislation.
The ERC is calculated as a percentage of qualified wages paid by an eligible employer, with the maximum credit amount varying depending on the size of the employer's workforce and the quarter in which the credit is claimed.
Eligible employers can claim the Employee Retention Credit (ERC) for qualified wages paid to employees during the pandemic, between March 13, 2020, and September 30, 2021. The credit is typically claimed by filing a refund claim for the applicable quarter. While many refund claims have already been processed and paid, others are still pending. The IRS has expressed concerns about the validity of many refund claims, citing the aggressive promotion of the ERC as a leading tax scam in 2023.
Latest Update from the IRS on The Employee Retention Credit (ERC)
Due to the large amount of ERC scams, the IRS recently created a withdrawal process for businesses that have concerns about the accuracy of their claims. This process helps those who were pressured or misled into filing an ERC claim and allows businesses to avoid future penalties and interest on these claims. To check if your business is eligible for this withdrawal process, businesses must follow the instructions on the IRS website.
ERC Scam Red Flags: What to Watch out For
ERC scams typically involve unsolicited calls, emails, or letters from individuals claiming to be experts in maximizing your ERC claim. These scammers will often promise substantial tax refunds and exaggerate the business’s eligibility requirements. Here are some common red flags to watch out for when someone contacts your business about assisting with this tax benefit.
Excessive upfront fees: Legitimate ERC specialists typically charge fees based on a percentage of the actual refund received, not upfront fees. If someone is charging a flat fee or a large fee upfront, they may be looking to take the cash without following through with the benefit for your small business.
Guaranteed success: There is no way to guarantee success or a specific amount of Employee Retention Credit. A reputable ERC specialist will not guarantee the success of an ERC claim, as eligibility depends on various factors.
Pressure to act immediately: Scammers often create a sense of urgency by claiming that eligibility deadlines are approaching, prompting businesses to make hasty decisions. The truth is that these claims often take months to process, and there are very few ways to speed up the request.
Unrealistic promises: Scammers may inflate potential refund amounts to entice businesses into their schemes. If something seems too good to be true, it most likely is.
How to safeguard your business from ERC scams
Here are a few ways to protect your business from ERC scams.
Educate yourself: Scammers often target busy small business owners who may not fully understand the eligibility criteria for the ERC. Before seeking any assistance, familiarize yourself with the program's guidelines and ensure your business meets the qualifications. This will help you identify potential red flags and avoid falling prey to misrepresentations.
Seek professional guidance: Consult with your trusted payroll provider or tax advisor to determine the best course of action for your small business. A qualified tax professional can assess your eligibility, identify potential deductions, and ensure proper compliance with IRS regulations.
Beware of unsolicited contacts: If you receive unsolicited calls, emails, or letters regarding ERC claims, exercise caution and verify the sender's credentials before engaging in any discussions. These scammers will act quickly. Be sure to check their registration status with the IRS, request proof of experience and expertise, and seek referrals from trusted sources. Avoid working with individuals or companies that lack transparency or fail to provide clear explanations of their services and fees.
Avoid upfront fees: Do not pay any upfront fees before verifying the legitimacy of the service provider and their track record. If they are truly a reputable ERC specialist, they will not rush you into paying any fee upfront.
Protect sensitive information: Legitimate ERC service providers do not require sensitive financial information upfront, such as Social Security numbers, bank account details, or login credentials. If you sense that something is off, take your time to prove the legitimacy of the individual or business to which you are providing your personal information.
Report Suspicious Activity: If you encounter any suspicious activity or believe you may have been targeted by an ERC scam, report it immediately to the IRS. You can file a complaint online or call the IRS Tip Line at 1-800-366-4484.
As your payroll partner, we are committed to providing you with accurate information and guidance regarding ERC claims. We will help you understand your eligibility, assess the potential benefits, and navigate the application process to ensure compliance with IRS regulations.
Remember that you are not alone in navigating the complexities of tax regulations. Partner with your trusted payroll provider to protect your business from fraudulent practices and maximize your ERC benefits responsibly. Remember, if something sounds too good to be true, it probably is. Exercise caution, seek expert advice, and stay informed to protect your business from these fraudulent ERC schemes.
PayWorks is not providing legal or tax advice. The information on this website is for informational purposes only and should not be relied upon as legal or tax advice. You should consult with your own legal and tax advisors before making any decisions about your financial situation.