Does Your Business Have a Defensible Stance for Your ERTC Claim? 

December 6, 2023
Dayes Law Firm

Claiming the Employee Retention Tax Credit (ERTC) can give your business up to $26,000 back for each eligible employee — a sizable chunk of change. But you must ensure that you claim this credit correctly to gain any benefits from it. Making mistakes in your application could leave you with tax penalties that offset any credits you are eligible for. 

Maintaining an ERTC-defensible stance can prepare you for a possible IRS audit. Learn what this means and how to safeguard your ERTC application. 

What Is an ERTC Defensible Stance? 

For many businesses and not-for-profit organizations, the IRS feels like a large, looming shadow, ready to strike at the slightest mistake or inaccuracy. This mindset leads businesses to avoid claiming tax credits simply because they fear making mistakes. 

But maintaining a defensible stance can allow you to have your cake and eat it too — claiming up to $26,000 back for each employee without facing IRS penalties. This is the concept of having all the information and proof you need to back up your tax credit calculations and eligibility should the IRS question you. 

With the help of a tax professional, you can maintain an ERTC-defensible stance that allows you to feel confident in your tax credit application. 

Potential Issues With ERTC Applications 

The Employee Retention Tax Credit is a complex, multi-faceted credit. Eligibility requirements are different for different types of businesses. You must also calculate your credit differently depending on the tax year: 2020 or 2021. 

As a result, mistakes are common. Below are some of the more prevalent issues that arise with ERTC applications.

Failing to Factor in PPP Loans

You can’t claim tax credits for the same wages you paid with PPP loan proceeds. This is called “double dipping” and will land you a tax penalty. 

As a result, when you claim the ERTC, you must factor in any PPP loans you secured during the pandemic and other credits that could impact your eligibility. 

Incorrect Gross Receipts Decline Calculation 

To be eligible for the ERTC, your business must have experienced a “gross decline in receipts” for a given quarter in 2020 or 2021 compared to the same quarter in 2019. Many miscalculations can arise when determining this “gross decline,” such as:

  • Inaccurately calculating gross receipts 
  • Comparing gross receipts to the wrong quarter
  • Using the criteria for the wrong year (a gross decline is 50% in 2020 or 20% in 2021)

Incorrect Qualifying Wages Calculation 

Claiming the ERTC involves somewhat complex calculations. You must calculate the qualified wages you paid to each employee whose income is eligible for this credit. These wages vary depending on whether your business qualifies as small or large under IRS guidelines. 

Indicating the wrong figure on your ERTC application could result in a penalty. There is room for miscalculation in every employee wage calculation you make. 

Maintaining an ERTC Defensible Stance 

To avoid the risks above and maintain an ERTC defensible stance, follow these tips: 

  • Before calculating your ERTC, thoroughly research the credit and ensure you understand every facet. 
  • Keep several copies of all gross receipts and employee wage records.
  • Double-check or even triple-check all calculations against IRS guidelines.
  • Work with a tax professional throughout your ERTC process.

Dayes Law Firm: Your ERTC Guides

At Dayes Law Firm, we’re well versed in the complexities of the Employee Retention Tax Credit. We can help you maintain an ERTC defensible stance by guiding you through the application process, reviewing the accuracy of your calculations, and even filing on your behalf. Give us a call at (800) 503-2000 or fill out our online form to schedule your free consultation.