How Can Businesses Avoid Claiming ERTC-Ineligible Wages?

December 19, 2023
Dayes Law Firm

ERTC mistakes can happen when employers fail to check eligibility criteria or provide inaccurate or incomplete records. Misunderstandings about what counts as qualifying wages can also trigger a claim denial or an IRS audit. 

To avoid stress and frustration, ensure your claim follows the proper guidelines and provides solid, provable information. You must verify that you only include eligible wages in your claim and report wage expenses accurately.

Tips for Avoiding Mistakes in ERTC Claims

The ERTC/ERC provided a lifeline for many eligible employers. However, mistakes, ineligible claims, and fraud were another outcome of this tax initiative. The IRS looks closely into each amended tax return to combat fraudulent claims. The IRS will deny inaccurate claims and may decide to audit the business. In some cases, business owners face criminal proceedings. 

While some audits are random, you’re less likely to encounter one if you double-check your eligibility criteria and seek reputable legal counsel. The following tips can help ensure your claim is valid and free of mistakes. 

1. Check Your Eligibility

Do you qualify for the ERTC? Two ways to check this are:

  • The government orders test: Did your business suffer a full or partial shutdown because of COVID pandemic orders? You may also qualify if government mandates caused a supply chain disruption that had a direct, documentable effect on your business.
  • The gross receipts test: Did your gross receipts decline by at least 50% during 2020 and by at least 20% during the eligible quarters in 2021 compared to 2019?

2. Understand Wage Qualifications

Some employee wages are ineligible for the ERTC. For example, you may not claim this refundable tax credit for:

  • Employees who didn’t work during the eligible quarter
  • Owner wages (with some exceptions)
  • Wages for which you already claimed other credits
  • Wages you paid through the Paycheck Protection Program (PPP) if you had your loan forgiven

3. Check Your Numbers

For 2020, you can claim the ERC on 50% of eligible employee wages up to $5,000 per employee. For 2021, the maximum credit is 70% of eligible wages, with a cap of $7,000 per employee per quarter or $21,000 per employee per year.

You must ensure you report employee wages accurately. For example, if an employee’s eligible wages for Q1 of 2021 were $8,000, you can’t insert $10,000 into wage reports to claim the maximum benefit.

Save your payroll records and other relevant documentation. Your reports must show that you qualify for the ERTC and document all eligible wages. If the IRS challenges your claim, providing these documents can help you avoid an audit.

4. Steer Clear of Shady ERTC Services

Some illicit companies present themselves as “ERTC advisors” and pressure employers into filing ERTC claims. These services often use shady practices and create tax complications for honest employers. You can avoid such scams by checking the credentials of any companies offering ERTC services.

5. Consult a Tax Professional 

If you haven’t claimed the ERTC yet, consult a trusted professional like a reputable tax lawyer. A tax attorney can help you understand whether your business qualifies for this benefit and calculate eligible wages. If the IRS still denies your claim or you face an audit for some reason, a lawyer may advise you on how to proceed to avoid tax penalties.

Contact Dayes Law Firm for Help With Your ERTC Claim 

Are you preparing to claim the ERTC? Our experienced tax lawyers can review your claim, help you avoid costly ERTC mistakes, save you time and trouble, and minimize your chances of an IRS audit. Give us a call at (800) 503-2000 or fill out our online form to schedule your free consultation.