STPS

What is ERC and What Scams to Watch Out For

The Employee Retention Credit was established by the Coronavirus Aid, Relief, and Economic Security Act of 2020, a fully refundable tax credit aimed at incentivizing employers to keep their employees on payroll during difficult economic times. For eligible quarters in both 2020 and 2021, the ERC is retroactive for up to three years from the time the initial tax return was filed.

In 2020, the ERC enables employers to receive a credit of up to 50% of qualified wages paid per quarter, with a limit of $10,000 per employee, for wages earned from March 13, 2020, to December 31, 2020. In 2021, the credit was increased to 70% for most businesses, with a maximum of $10,000 per employee per quarter until September 30, 2021. Consequently, the maximum credit per employee per year is $5,000 in 2020 and $21,000 in 2021 (or $7,000 per quarter).

Examples of qualified wages include salary, vacation pay, parental leave pay, and health benefits. To be eligible, you must meet one of two requirements: your operations must have been either fully or partially suspended due to a government order, or your gross receipts must have decreased by more than 50% in 2020 and 20% in 2021 in comparison to the same quarter in 2019.

The Employee Retention Credit (ERC) is a significant program that provides employers with a valuable incentive to retain employees they might otherwise not be able to keep due to financial constraints. Despite its advantages, it’s important to note that like any tax relief initiative, there is a potential risk of tax fraud. If you have any concerns or uncertainties about the ERC, seeking the advice of a tax specialist is a wise decision.

ERC Scams:

The image features a yellow notepad with the word "SCAM" written in bold red letters, emphasizing caution. Surrounding the notepad are scattered $100 bills, symbolizing financial deceit or fraud.

During tough financial periods, the Employee Retention Credit (ERC) can offer businesses substantial financial relief. Unfortunately, there has been a rise in fraudulent activities targeting businesses that are unfamiliar with the correct way to access or utilize this tax credit and others. The following are several typical ERC scams that businesses should be aware of.

 

Please keep in mind, any business that files for an ERC will be liable for proving the qualification of the credit.  If the credit is found to be false, and the company did not qualify, that business will be liable to repay the funds, not the company (scammer) that processed the credit.

ERC Advisors Who Aren't Real

One common fraudulent scheme is the false advisor scam. In this type a scammer impersonates an Employee Retention Credit (ERC) specialist and promises to assist businesses with their applications for a minimal  or no fee. The scammer may even demand upfront payment for their services, only to pocket the money without properly filing the necessary documents.

Therefore, it’s essential to conduct thorough research and verify that any professional advisor you engage is duly registered with the relevant governmental agencies to avoid falling prey to such scams.

Incorrect ERC Claims Submission

There are instances where scammers pretending to be tax professionals submit erroneous Employee Retention Credit (ERC) claims to the IRS on behalf of businesses. This amounts to fraudulent activity, and the company will be held responsible for any inaccurate tax return information. These fraudulent entities may inflate the credit amount to retain the funds for themselves, and when the business is subjected to an audit, these scammers vanish without a trace.

Identity Theft

One of the most common types of Employee Retention Credit (ERC) scams is identity theft, where scammers try to steal personal data such as Social Security or bank account numbers to file for credit on your behalf. It is crucial to ensure that any sensitive information is kept confidential and only shared with trustworthy advisors or the IRS.

Scammers may use fraudulent emails, text messages, or phone calls to trick you, posing as IRS or other government officials. Be wary of clicking on any links or sharing any information in these messages.

Filing False Claims

One of the frequently occurring scams related to Employee Retention Credit (ERC) is the submission of fraudulent claims for credits that were not legitimately earned. Scammers may submit falsified records and documents to obtain credit, resulting in the government dispensing funds that were not rightfully deserved.

We recommend you confirm that you actually qualify for the ERC credit.  Don’t take the word of the company that has reached out to you with “we can help you”.  Contact a trusted provider who you have done business with, before you move forward with the process.

Using False Employee Data

Another fraudulent tactic that scammers may employ involves using fabricated employee information to claim credit. This can involve generating fake employee profiles or using someone else’s identity to falsely claim credits.

Inflating Wages

Another fraudulent practice is inflating wages to gain higher Employee Retention Credit (ERC). This involves falsifying payroll records and declaring higher wages than what employees were genuinely paid, aiming to secure a more substantial credit.

The image shows a magnifying glass focusing on the word "WAGES," printed in white on a blue section of a document or newspaper. The background is blurred, suggesting an emphasis on analyzing or highlighting wage-related details.

Using Ineligible Employees to Claim Credits

It’s possible for scammers to make false claims for employee retention credits, trying to include ineligible individuals like family members or contractors who are not recognized as employees by the IRS. 

To stay safe, be cautious of whom you collaborate with and avoid sharing personal information with anyone you don’t know well. Bear in mind that the information required for tax purposes is confidential, which is why fraudsters are always on the lookout for opportunities to acquire that information or make a quick profit.

Written by Mike Ritzema

Before founding Superior Trucking Payroll Service, Mike was the CFO of a trucking company with 80 trucks and a thriving brokerage. This experience gave him the perspective that a payroll solution has to make the lives of the office people better. All the solutions he has designed are to benefit everyone. Our company mission is to help trucking families and that includes the company owners, the drivers, and the office.

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