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Small businesses face an onslaught of advertisements, phone calls and emails to help them claim a pandemic tax credit. However, experts encourage business owners to review eligibility with a qualified tax professional.

Tax relief – known as employee retention creditor ERC — was enacted in 2020 support small businesses during the Covid-19 pandemic of up to $5,000 per employee in 2020 or $28,000 per employee in 2021.

While the credit applies to the 2020 or 2021 tax year, business owners still have time to amend their returns and claim the credit, prompting a flood of ads from companies offering to help.

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“The phone calls and requests are brutal,” said certified financial planner Craig Hausz, CEO and managing partner of CMH Advisors in Dallas. He is also a certified public accountant. “Our clients are getting a lot of them and it’s just bombarding them.”

While Hausz’s company completed at least 100 amended filings for clients to claim the employee retention credit, it also notified clients that they were ineligible.

“ERC mills” have emerged that charge small businesses as much as 25% to 30% of the loan received, said Kristin Esposito, director of tax policy and advocacy for the American Institute of CPAs.

“There’s a huge financial incentive,” she said.

It really put a strain on many client relationships.

Kristin Esposito

Director of Tax Policy and Advocacy for the American Institute of CPAs

Esposito said ERC mills may promise business owners they qualify or calculate more credit than the owners told them according to their CPA. “It really put a strain on a lot of client relationships,” she said.

After warning business owners about “third parties” promoting credit to keep employees in OctoberThe IRS added the problem to its annual list “Dirty Dozen” tax scams for 2023.

“While the credit has provided a financial lifeline to millions of businesses, there are promoters who trick people and businesses into thinking they can claim these credits,” IRS Commissioner Danny Werfel said in a statement. March statement.

How to qualify for an employee retention credit

One of the problems with claiming employee retention credit is the complexity because the rules have changed between 2020 and 2021according to Hausz.

The credit was enacted to keep employees on the payroll during quarters affected by the Covid-19 pandemic. While eligibility was initially from March 13 to December 31, 2020, the deadline has been extended to the third quarter of 2021 for most firms.

To qualify in 2020, businesses needed a government-mandated full or partial shutdown or a “significant drop” in revenue, according to IRSwith “less than 50% of gross revenue” compared to the same calendar quarter in 2019. For 2021, the 2019 revenue thresholds drop to “less than 80% of the same quarter.”

“We’ve done some for clients that have had outages, and we’ve done some that have had a drop in revenue,” which is easier to calculate, Hausz said.

Further, the credit was expanded from 2020 to 2021, originally covering 50% of qualified wages (capped at $10,000 per year per employee), with a maximum credit of $5,000 per employee in 2020. For 2021, the credit increased to 70% of wages ($10,000 quarterly per employee), worth up to $7,000 per quarter or $28,000 per year.

Why it’s important to work with a tax professional

One of the difficulties in claiming back the employee retention credit is that business owners must adjust other income as well, Esposito said.

While the process starts with Form 941-X — amended payroll tax return — the changes trickle down to corporate and personal income tax returns, which “creates a cascading effect,” she said.

Hausz said the “big problem” with newer companies that claim to help businesses get that one loan is that they don’t have to sign an amended statement to avoid future liability. “Don’t write it down if the people helping you aren’t willing to put their name on the filing as a paid preparer,” he warned.

IN March statementIRS Commissioner Danny Werfel warned that taxpayers are “ultimately responsible for the accuracy of the information on their tax return” and the agency is stepping up enforcement of those claims.

Hausz added that taxpayers should “talk to a qualified professional,” such as a CPA, enrolled agent, tax attorney or financial advisor. “There are literally hundreds of companies that I know personally that would deserve to be recognized and put their name to it.”

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