Unexpected Consequences of the Employee Retention Tax Credit
To date, achievements with ERTC include a payout thus far of over $230 billion in tax credits, with no end in sight, at least until the 2024 and 2025 deadlines have passed.
When the COVID-19 pandemic wreaked havoc on the global economy, the U.S. government stepped in with a series of financial relief packages under the collective CARES Act (Coronavirus, Aid, Relief, and Economic Security).
The CARES Act was meant to be a lifeline to struggling businesses and individuals whose livelihoods were compromised or put on hold because of nationwide shutdowns. Specifically, the Employee Retention Tax Credit (ERTC) incentivized employers affected by the pandemic to keep their employees on the payroll, even if their revenue had decreased or their operations were impacted.
Despite these good intentions by the government, there have been some unexpected ERTC results, some positive, some, not so much.
A Massive Volume of ERTC Claims
Early ERTC success indicators were evident in the massive influx of ERTC claims that have been filed and continue to pour in. This created a significant ERTC impact, and at one point, the IRS was so inundated with ERTC claims that the tax agency had to temporarily halt processing.
Companies Are Receiving a Financial Windfall vs. a Needed Lifeline
Many economists have criticized the ERTC as reinforcing the idea of “the rich get richer.” The reason is that the bulk of ERTC claims have been filed long after the quarters in 2020 and 2021, during the height of the pandemic.
The original purpose of the ERTC was to keep employees on payroll, so it was meant to incentivize struggling businesses to maintain the status quo, knowing that they could get a tax credit.
However, because businesses are filing for the ERTC years later, they were not necessarily influenced by this government promise, and they kept employees, regardless of any financial difficulties. This suggests that the ERTC funds now being paid out on retroactive claims are merely a cash windfall being given to businesses that don’t necessarily need the help.
Unscrupulous Third Parties Have Come Out of the Woodwork
One of the unintended results of ERTC implementation is a massive amount of fraud that is being perpetrated by third parties. In fact, the activity has become so prevalent that the IRS has added ERTC fraud to its list of “Dirty Dozen” tax scams.
Knowing that businesses can claim up to hundreds of thousands or even millions of dollars, “ERTC experts” are cropping up practically everywhere, promoting their services to cash-strapped businesses and making them believe offers that are simply too good to be true. This is all happening while they charge massive upfront fees or unreasonable commissions for filing the paperwork.
The ERTC rules are complex, and the penalties for filing a fraudulent claim are severe. Even an inaccurate claim filed in good faith can still carry severe financial consequences. For this reason, it is strongly recommended to work exclusively with tax and legal professionals who have intimate knowledge of the rules and latest updates regarding the performance of ERTC.
Contact an Experienced ERTC Professional
This tax credit is still a financial boon to businesses, and Employee Retention Tax Credit outcomes still have a positive outlook.
Whether your business is hanging on by a literal thread and desperately needs these government funds to keep the lights on this year, or you plan to utilize the money to reinvest in your organization’s growth, if you are eligible for the credit, it’s really a good idea to claim it.