Beware: Is A Widely Advertised Tax Credit Legit Or A Scheme?
The commercials are all over TV, radio and social media.. They go something like this;
"Get a $26k check per employee from the IRS Your business was hurt. But you kept your employees on payroll. The Employee Retention Credit means the IRS might owe you up to $26,000 per employee. It is not a loan and does not need to be repaid"
The companies offer to help you find out if you qualify and maximize your credit. They even promise to complete the necessary forms to get you a check in the mail from the IRS as quickly as possible.
Some of the marketers of these services are now claiming in their ads that others offering to help businesses claim the ERC funds are less than scrupulous operators but you can trust them.
The Employee Retention Credit or ERC program; is it legit? Most of us are not employers so we turned to Kyle Meissner, CPA and Financial Adviser with Cordell, Neher and Company, PLLC in Wenatchee.
Meissner says the ERC program is legit but his concerns lie in the fees or commissions charged businesses to obtain the credit.
"Depending on your 2020 or 2021 income compared to 2019? You could qualify for that credit. This was all COVID related and it was valid all the way through the third quarter of 2021. You business must have suffered either a drop in revenue, different percentages, depending on which year, either in '21 or '20 compared to 2019, or your business had to have closed by government order or new COVID startup businesses could qualify for some of the quarters.
Meissner says the credit for 2020 was 50% of the wages paid to employees up to $10,000 limit or a $5,000 credit for 2020. The percentage is 70% of the wages paid up to $10,000 in wages per employee per quarter for three quarters or $21,000 total. Combine the two for the $26,000 claim in the ads.
Meissner alerts business owners interested in ERC that a legitimate tax preparer will be able to determine eligibility and file for Employer Retention Credits as a part of their customary tax preparation fees and not on a contingency, commission or fee based on a percentage of the credit.
Another concern for businesses seeking the ERC funds are bad actors claiming the credit for businesses that don't qualify. Meissner says he fears businesses taking the employee retention credit for business owners, collecting fees or commission based on claim totals
"Once employee retention credits end, they're going to close up shop and the IRS is potentially going to audit these businesses. Their clients could have to pay back a credit and be left with no recourse because whoever filed the credit form isn't around anymore"
-- Kyle Meissner
Bottom line; yes, there is a credit of up to $26,000 per employee available, but there are a fairly complicated set of rules to make sure that you qualify so be wary of anybody that says that they're getting you $26,000 per employee as a blanket statement.