ERC is Still Active

For those who qualify, (see below) the Employee Retention Credit (ERC, or ERTC) is still active. The IRS is simply pausing the processing of those claims. Here is a brief overview of the ERC for those who may need a refresher.

The Employee Retention Credit (ERC or ERTC) is a complex tax credit provided by the IRS for businesses and tax-exempt organizations that continued to pay employees during the COVID-19 pandemic, especially when facing shutdowns or experiencing a required decline in gross receipts in 2020 and 2021. However, the IRS has identified issues with aggressive marketing and misinformation, leading to ineligible claims for the ERC. To assist taxpayers in determining their eligibility accurately, the IRS has created a detailed question-and-answer chart.
Part A: Checking Your Eligibility

1. Operational Status and Employee Payments:
   
   • The first step involves confirming whether a business or tax-exempt organization operated a trade or business, had employees, and paid wages between March 13, 2020, and December 31, 2021. Household employers are not eligible for the ERC.
2. Gross Receipts Decline:
   
   • Eligibility hinges on whether the trade or business experienced the required decline in gross receipts during specific eligibility periods in 2020 or the first three quarters of 2021. If yes, the organization may be eligible, but further confirmation of the decline is necessary.
3. Supply Chain Issues:
   
   • If the ERC is being claimed due to supply chain issues, caution is advised. A supply chain disruption alone doesn't qualify, and detailed scrutiny of the supplier's government order is essential.
4. Business Suspension by Government Order:
   
   • The organization must determine if its operation was fully or partially suspended by a government order due to the COVID-19 pandemic in 2020 or the first three quarters of 2021. The suspension must be due to a government order and not merely guidance, recommendation, or statement. Eligible periods are limited to when the government order was in effect and operations were suspended.
5. Recovery Startup Business (RSB):
   
   • For businesses initiated after February 15, 2020, with $1 million or less in average annual gross receipts for the prior three tax years and not qualifying under the gross receipts or suspension tests, there may be eligibility. RSBs have limitations on the maximum ERC per quarter and are eligible only for the third and fourth quarters of 2021.

Part B: Claiming the ERC if Eligible
If the eligibility questions lead to this part, the organization may qualify for the ERC. Thorough record-keeping, including wages paid, gross receipts, government orders, and other required documents, is crucial. Assistance from a trusted tax professional is recommended, and additional information is available at IRS.gov/erc.
Part C: Resolving an Incorrect ERC Claim
If an incorrect ERC claim has been made, the IRS provides a withdrawal process outlined at IRS.gov/withdrawmyerc. This process is applicable if certain conditions are met, including making the claim on an adjusted employment tax return, filing the adjusted return only for the ERC claim, and not cashing or depositing the refund check. The IRS is also working on guidance for employers who were misled into incorrectly claiming the ERC and received the credit. Regular updates on IRS.gov/erc are advised for the latest information.
In conclusion, the ERC is a valuable credit for businesses and tax-exempt organizations, but it is crucial to navigate the complex eligibility criteria accurately to avoid potential repercussions for incorrect claims. The IRS emphasizes its commitment to helping taxpayers while preventing incorrect ERC claims and fraud.