The pandemic was hard for businesses worldwide, and the situation in the US wasn’t different. According to the Wall Street Journal, more than 200,000 businesses had to close down because of the situation forcibly. As a response to this situation, the US government implemented the Employee Retention Credit (ERC); this is a refundable tax credit applied to payroll taxes that encourages you as a business owner to continue paying your employees, even if your operations are disrupted by giving you a certain relaxation on the taxes you have to pay per employee.
This allows you to save money and continue looking after your employees. Unfortunately, despite how well intended this program is, it has been frequently misused, and numerous third parties have scammed businesses by stealing their money. Therefore, to protect your company from falling victim to these fraudulent activities, here’s what you need to do:
Table of Contents
- 1 1. A Look Into the ERC
- 2 What Are The Common Ways You Can Get Scammed?
- 3 1. Identity Theft
- 4 2. Using Fake Employee Data
- 5 3. Cash In On Employees Who Don’t Qualify
- 6 What’s the Best Way to Avoid These Scams?
- 7 1. Consult Established Companies
- 8 2. Push For An In-Person Communication
- 9 3. Find Out Why You Got Audited
- 10 4. Confirm Your ERC Eligibility Status
- 11 Final Thoughts
1. A Look Into the ERC
The Employee Retention credit is a type of relief that was a need of time during the pandemic. According to the ERC, as an employer, you can claim the tax credit on your employee’s payroll while filing taxes. This encourages employers to hold on to employees instead of letting them go. This program was started on March 12th, 2020, and the end date was set as September 30th, 2021, for some businesses, while other companies got an extension until December 31st, 2021. However, you should be aware of the updates related to the ERC, as there are numerous changes and modifications that have been implemented in 2021. At the same time, you must try Avoiding ERC Scams and report them if you encounter any. From fake ERC advisors to deceptive scam companies, you must know who you are dealing with and the information they provide. Thankfully, there are a few telltale signs that you can look out for to spot an ERC scam. Therefore, we recommend only reliable companies such as ERC Today for all ERC needs.
What Are The Common Ways You Can Get Scammed?
It helps to know how these criminals operate, which makes them immensely convincing in what they do. These are as follows:
1. Identity Theft
Most ERC scammers pose as tax advisors and reach out to your establishment. They may steal information and data from credible companies to mimic them. Pretending to be tax advisors allows them to collect information about your business, your finances, and how much capital you invest into your company. Identity thieves seem credible because they know how to use their stolen identity appropriately. The IRS is known to ask you detailed questions about your finances; this is what makes identity theft and posing as a tax advisor plausible.
2. Using Fake Employee Data
The IRS calculates the amount of ERC you should get according to what employees should receive and how many workers are in your enterprise. Certain ERC scammers create phantom employees to add to your list and expand it. This messes up the IRS calculations and ultimately increases the tax credits you are supposed to receive. However, this type of scam isn’t very successful because the government verifies all the information regarding your company, including your employee’s background. Therefore hiding fake employee records and curating a false background doesn’t always work.
3. Cash In On Employees Who Don’t Qualify
Only some people are eligible for an ERC. The IRS has specified rules on who can access ERC refunds and what employees don’t meet the benchmark. For instance, employees whose positions and work were not impacted by the pandemic don’t qualify for a refund. But if a tax advisor reaches out to you and tries to include employees who don’t qualify for this ERC calculation, you should understand that this is a scam. Familiarize yourself with the rules of the IRS, and know what category of your employees fall into this section.
What’s the Best Way to Avoid These Scams?
Understanding how scammers operate can help you subside their attacks. While it may not be easy at first, understand the framework in which the IRS operates and then avoid these scams from occurring:
1. Consult Established Companies
It’s vital that before you start the process of consultation, you check out the company you’re working with thoroughly. If any new or start-up company reaches out to you for tax consultation purposes, you should conduct a background check on their employees and manager. You shouldn’t work with them if there are no details on them. ERC scams mainly stem from these new companies, and they’re always looking to manipulate reputable enterprises for their money.
2. Push For An In-Person Communication
You are well within your rights to contact these scammers for an in-person meeting. You don’t have to limit yourself to communicating on the phone or through email. Filing forms and submitting details for tax reclamation is complicated. You need to iron out many fine details, and sometimes it’s best to see the tax representation in person to get clarification for your situation. However, those running scams will refuse to meet you and give you excuses why they can’t. Some may even conceal their location, demand that you pay the ERC submission fee, and evade questions relating to the ERC to avoid giving much away.
3. Find Out Why You Got Audited
If your company gets audited, it may be hard for you to claim the ERC credit. IRS audits are technical processes that usually indicate that you have filed your taxes improperly and need to revisit books. An audit may happen in extreme cases if the IRS believes you’re committing tax fraud.
For this reason, if you get issues with an auditing form, you must find out why. Legitimate tax consultants and accounting professionals will guide you through your problem with minimal hassle.
4. Confirm Your ERC Eligibility Status
The IRS defines specific criteria you must fulfill to get evidence for your ERC eligibility. Scammers may only swipe for cash without giving you any confirmation or details of why you were selected or rejected from submitting for ERC. Most reasons are simple: if your company was prospering during the pandemic, had no trouble controlling cash flow, and was able to retain employee wages, you may not qualify for ERC, and there’s no reason for you to reach out to a third party in an attempt to file a claim.
Businesses need all the help they can get to manage and maintain their enterprise. This was the case during the pandemic of 2019, when the virus heavily impacted companies all over the US. As a result, the government offered incentives like the ERC to help these enterprises stay afloat. However, when it comes to implementing new policies or allowing people to apply for more tax relaxation, it’s not uncommon for scammers to intervene and extort you for money. Therefore the only way you can stay vigilant and not fall victim to these scammers includes by ensuring you understand the ERC rules, refusing to work with fraudulent companies, and staying in touch with the IRS instead of a third party to ensure all your books are in order.