The Internal Revenue Service (IRS) has started to audit the recipients of the Employee Retention Credit (ERC), one of the latest stimulus programs of the COVID era that continues to accept new applications. Several companies have been notified that their ERC applications are being reviewed, though it is unclear if they were randomly selected or targeted for some reason. Now is the time for employers to review their employee retention credit applications and proceed with caution when submitting any new ones. Even if you have already applied for the benefit, are considering it, or have ignored it due to limited or changing guidelines, it is still worth monitoring the ERC.
The ERC is a refundable tax credit for employers who keep their employees on payroll during the pandemic. It is available to employers whose operations have been fully or partially suspended due to government orders related to COVID-19, or whose gross receipts have declined by more than 50% compared to the same quarter in 2019. The credit is equal to 50% of qualified wages paid up to $10,000 per employee, and can be claimed for wages paid between March 13, 2020 and December 31, 2020. Employers can also claim a credit for health plan expenses incurred during this period. The IRS has provided guidance on how employers can properly document their eligibility for the ERC and how to calculate the amount of credit they are entitled to.
Employers should also be aware that they may be subject to an audit if they receive an ERC. If you are selected for an audit, it does not necessarily mean that you have done something wrong or that you will owe money to the IRS. However, it is important to be prepared and provide all necessary documentation in order to avoid any potential penalties or other issues.