The Employee Retention Credit is Being Audited By the IRS as Explained by Former IRS Auditor | 2023 Dirty Dozen Tax List
Whether you claimed the credit on your original quarterly return or claimed it on an amended return, don’t be surprised if you receive a notice in the mail or you receive a phone call from the IRS. It's not guaranteed that you will be audited, but if your Employee Retention Credit amount is large, it's highly possible that you will be audited.
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#employeeretentioncredit
00:00 - The IRS is auditing Employee Retention Credit claims
01:16 - Why did the government implement the Employee Retention Credit
01:42 - What wages can be used for the credit
03:51 - Who can claim the Employee Retention Credit
05:46 - What included in gross receipts
06:20 - What would an auditor review during an audit
07:25 - What happens if the auditor finds a mistake
07:40 - What documents might be needed during an audit
08:10 - You may still have time to file to take the credit
TRANSCRIPT:
The IRS is well aware of consulting firms that offer to help taxpayers claim the Employee Retention Credit for a fee. Also, some consultants are saying that almost all employers can take the credit since there was social distancing in the workplace. Since consultants are saying things like this, and the fact that it's super easy to claim the credit, the Employee Retention Credit is now on the IRS' annual list of "Dirty Dozen" tax scams. So, that means that the IRS is heavily auditing this credit.
The Employee Retention Credit was offered to businesses and tax-exempt organizations to keep their employees on their payroll during COVID. The credit is not available for individuals. The credit was established because employers were laying off so many employees that the government was being overwhelmed by unemployment claims. The credit was offered to offset the costs of an employer keeping employees on payroll which in turn kept more people off of unemployment. A business can get a refundable tax credit as high as $5,000 per employee in 2020 and as high as $21,000 per employee in 2021. If you haven't claimed the credit already, you still may be able to claim it.
The ERC is calculated using the wages of full-time employees. Small employers can use the wages for full-time employees paid during COVID whether the employees worked during COVID or not. Large employers can only use the wages of full-time employees who DID NOT work during COVID but were still paid. In 2020, you are a small employer if you had 100 or fewer full-time employees. In 2021, you are a small employer if you had 500 of fewer full-time employees. A full-time employee is an employee who worked or was paid at least 30 hours per week or 130 hours per month.
Qualified wages include compensation and healthcare costs. You can claim wages paid between March 13, 2020, and December 31, 2021.
Gross receipts are all revenue received or accumulated from any source, such as product or service sales, interest, dividends, rents, royalties, fees, or commissions during the taxable year. When you are calculating gross receipts, you have to include the gross receipts of all related companies.
For tax exempt organizations, gross receipts generally include all donations and amounts received from investments and grants.
You can exclude, the amount of PPP loan forgiveness, Shuttered Venue Operators grants, and Restaurant Revitalization grants from gross receipts.
If you do qualify for the Employee Retention Credit and haven't claimed it yet, you can file an amended employment tax return. Please just make sure to amend your federal tax return as well. For 2020, you have until April 15, 2024 to file; for 2021, you have until April 15, 2025. After you file your amended employment tax returns, you will receive a refund check from the IRS BUT you will probably owe taxes on your federal tax return because you will have to decrease the wage deduction that you took on your federal return.
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