How to Avoid Employee Retention Credit (ERC) Scams

In the aftermath of the COVID-19 pandemic, the Employee Retention Credit (ERC) was introduced as a lifeline for businesses struggling to keep their employees on payroll. While this initiative has offered substantial relief for many, it’s also created an opportunity for scammers to exploit unsuspecting business owners. This blog post serves as a guide for businesses to safely navigate the ERC process and avoid potential scams.

Understanding the ERC

Before we delve into prevention strategies, it’s crucial to understand what the ERC entails. The ERC is a refundable tax credit against certain employment taxes equal to a percentage of the qualified wages an eligible employer pays to employees after certain dates. The aim is to encourage businesses to keep employees on their payroll.

Recognizing ERC Scams

1. **Unsolicited Contact:** Be wary of unsolicited phone calls, emails, or texts claiming to be from the IRS or a tax professional offering to help you claim your ERC. The IRS will not initiate contact with taxpayers via email, text messages, or social media channels to request personal or financial information. Correspondence from the IRS is typically through mail.

2. **Guaranteed Maximum Credit:** Any party that guarantees you will receive the maximum credit before a thorough review of your eligibility and financial situation should be viewed with suspicion. The amount of credit any business can receive varies based on several factors, including the number of employees and the extent of COVID-19’s impact on the business.

3. **Upfront Fee Requests:** Scammers may request an upfront fee to help you claim your ERC. While it’s normal for tax professionals to charge for their services, legitimate professionals will typically not require payment before they perform any work.

4. **Exaggerated Claims:** Be cautious of claims that sound too good to be true, such as promises to obtain credits for your business even if you have not been affected by the pandemic or if you’ve not retained employees.

Tips to Avoid ERC Scams

1. **Educate Yourself and Your Team:** Familiarize yourself with the details of the ERC program, including eligibility criteria and the application process. Make sure your management and HR teams also understand these details to be able to spot red flags.

2. **Use Trusted Sources:** Always use trusted sources when looking for information about the ERC. The IRS website is the most reliable source of information for all tax-related matters, including the ERC.

3. **Verify Credentials:** If you are using a third-party service to help you claim your ERC, make sure they are legitimate. You can verify the credentials of tax preparers on the IRS website.

4. **Secure Your Information:** Protect your company’s sensitive information. Don’t share your Employer Identification Number (EIN), social security numbers of employees, or other private information unless you are sure you’re dealing with a legitimate entity.

5. **Report Suspected Scams:** If you suspect you’ve been targeted by a scam, report it to the IRS. Your report can help protect other businesses from falling victim to the same scam.

6. **Consult with Professionals:** When in doubt, consult with a trusted tax professional or legal counsel. This could be especially useful for small businesses that might not have the resources to thoroughly vet every communication they receive.

ERC Tax Financial provide ERC tax credit services for small businesses throughout the United States. Contact us to see if you qualify for the ERC tax credit grant.