Director at IRS says “Think Twice” before claiming expired COVID-19 Employee Retention Credit

The COVID-19 pandemic has affected many aspects of our lives, including our work. To help employers cope with the economic impact of the pandemic, the U.S. government has introduced several relief programs, including the Employee Retention Credit (ERC). This credit is a refundable tax credit that eligible employers can claim for retaining their employees during the pandemic.

While the Employee Retention Credit was a valuable relief measure during the COVID-19 pandemic, employers should think twice before claiming an expired credit. The IRS’s increased scrutiny of tax credits and the potential for penalties and interest make it essential to follow the rules and requirements for any credit, including the ERC.

However, the ERC has some limitations, one of which is that it expired at the end of 2021. This means that employers cannot claim the credit for wages paid after December 31, 2021. Despite this expiration date, some employers may be tempted to claim the credit for wages paid in 2022, either by mistake or by design.

During a payroll conference in March 2022, Sharyn Fisk, the Director of the IRS’s Office of Professional Responsibility, cautioned employers against claiming the expired ERC. Fisk stated that the IRS is “more frequently turning out to audit taxpayers who claim credits that they are not entitled to,” and that claiming an expired credit could trigger an audit.

Fisk’s warning highlights the importance of carefully reviewing the eligibility criteria and timelines for any tax credit before claiming it. In the case of the ERC, eligible employers must meet several requirements, such as having experienced a significant decline in gross receipts or being subject to a government shutdown order. They must also calculate the credit amount based on a formula that takes into account the wages paid to eligible employees.

Employers must also file Form 941, the Employer’s Quarterly Federal Tax Return, to claim the ERC. This form requires accurate reporting of the wages paid and the credit claimed, and failure to file it or to report the credit correctly can lead to penalties and interest.

In light of these requirements and the expiration of the ERC, employers should be cautious before claiming the credit for wages paid in 2022. They should ensure that they meet all the eligibility criteria and that they accurately calculate and report the credit amount on Form 941. They should also consider consulting with a tax professional or an accountant to avoid any mistakes or misunderstandings.