There are several very good reasons you should make sure to be compliant with your Employee Retention Tax Credit (ERTC) claim if you choose to make one as a business owner. The legal considerations for mitigating risk in ERTC claims and compliance could save you a lot of trouble later, especially now that the IRS is increasing scrutiny of current applications. 

How to Mitigate Risk in ERTC Claims and Compliance 

Your business must have experienced fully or partially suspended operations as a result of government orders due to COVID-19 to potentially qualify for the Employee Retention Credit – or, if your business experienced a substantial decline in gross receipts during a quarter in 2020 or 2021 when compared to the same quarter in 2019, it may be eligible to claim this important tax credit. 

Determining eligibility in the first place is an important legal consideration when mitigating risk for your ERTC claim. If you don’t actually qualify to claim the credit, you could end up needing to repay the credit along with major penalties and interest.

The qualified wages you report also need to be accurate, or you could run into trouble with the IRS later. Qualified wages in 2020 are up to 50 percent of $10,000 in employee wages and health plan costs, totaling $5,000 per employee. 

Eligible employers can claim a credit of up to 70 percent of qualified wages paid to employees after December 31, 2020, and before October 1, 2021. For the year 2021, the tax credit is equal to 70 percent of the first $10,000 in qualified wages per quarter, totaling up to $7,000 per employee per quarter. Again, this can include qualified health plan expenses. 

As part of overall compliance when it comes to claiming the Employee Retention Tax Credit, you should ultimately make sure all of the documentation for your claim is correct. Records of gross receipts, information on payroll, and more are important to claiming the credit. If anything seems even slightly off, that could look like a red flag to the IRS. 

Legal Considerations When You Claim the ERTC

Business owners who turn in incorrect Employee Retention Tax Credit claims, even unknowingly, could face serious financial and legal consequences.

The IRS warned in a recent press release that anyone who improperly claims the ERTC will have to pay it back, “possibly with penalties and interest.” In fact, if an employer is audited and the amount of the ERTC is ultimately reduced, penalties could vary from a 20 percent “accuracy-related penalty” to a 75 percent penalty if the agency claims civil fraud by the employer, Bloomberg Tax reported. 

The outlet went on to warn, “In an egregious case, the IRS could assert criminal fraud, resulting in penalties and potential imprisonment.”

That’s a major legal consideration a business owner claiming the ERTC should keep in mind, but employers can help mitigate the risk of such an extreme consequence by asking legal professionals for assistance with their ERTC application. 

Assistance with Applying for the ERTC

A qualified tax professional like those on the team at Dayes Law Firm can offer assistance with the Employee Retention Tax Credit.

We can work with you to make sure all of the information you’re turning in to the IRS for ERTC-related purposes is as accurate as it can be, to the best of your knowledge. Our team of experienced tax attorneys has already helped many business owners apply for the ERTC and we have a demonstrated record of success in assisting with these claims. 

When it comes to compliance and the legal considerations around the Employee Retention Tax Credit, as well as further alleviating risk with your ERTC claim, who better to turn to for help than a tax attorney? Please contact Dayes Law Firm today to learn more in a free, no-obligation consultation, and see how we can work with you and your business today, or call us on (800) 503-2000 to learn more.