The Employee Retention Credit (ERC) was introduced in March 2020 with the emergence of Covid as part of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). Businesses and tax-exempt organizations qualified by meeting one of three criteria. There were special rules for those that had received a PPP loan and used wages for forgiveness. IRS detected a surge of questionable claims and scams from misleading marketing campaigns of 3rd party processors.
IRS has since halted processing new claims and has shifted their focus on reviewing existing ERC claims for compliance, including intensifying audit work and criminal investigations on promoters and businesses filing dubious claims. IRS has already issued an excess of 20,000 disallowance letters solely to entities that didn't qualify.
What were the qualifications for the ERC?
Businesses and tax-exempt organizations with qualified wages paid between March 13, 2020 and December 31, 2021. Eligible employers must have sustained a full or partial suspension of operations due to orders from a governmental authority, or experienced a significant decline in gross receipts in 2020 (50% compared with the same period in 2019) or a decline in gross receipts during the first three quarters of 2021 (20% reduction compared to the same period in 2019), or qualified as a recovery startup business for the third or fourth quarters of 2021.
Employers cannot claim the ERC on wages that were reported as payroll costs for PPP loan forgiveness.
IRS Warns of Scams: More than 20,000 disallowance letters issued. Hundreds of criminal cases being worked. IRS-CI has uncovered suspected pandemic fraud totaling more than $8 billion.
Voluntary Disclosure Program (Credit Already Received): Repay only 80% of ERC received. No interest repayment required. No return amendment needed. 20% reduction not taxable. No penalties or interest. No ERC audit for resolved periods.
ERC Withdrawal Program (Claim Pending or Check Not Deposited): Available if claim was filed solely for ERC, no other adjustments, and you wish to withdraw the entire amount.