Common Initial ERC Filing Problems — Are You Optimizing Relief Potential While Minimizing Audit Risk?

The Employee Retention Credit (ERC) is a valuable tax credit that can provide significant relief to eligible employers who were adversely affected by the COVID-19 pandemic. However, there are some common initial ERC filing problems that employers should be aware of to optimize their relief potential while minimizing audit risk. Here are a few of the most common issues:

1. Calculation errors: One of the most common problems is incorrect calculations of the ERC. To avoid this issue, it’s important to carefully review the eligibility requirements and properly calculate the amount of qualified wages and related expenses that can be claimed.
2. Incomplete documentation: To claim the ERC, employers must provide documentation to support their eligibility and the amount of the credit claimed. This documentation should include records of employment taxes, payroll records, and other supporting documents. Failure to provide complete and accurate documentation can lead to a delay in processing or a denial of the credit.
3. Claiming the credit for ineligible wages: The ERC can only be claimed for qualified wages, which are subject to certain limitations and requirements. Some employers may inadvertently claim the credit for ineligible wages, such as wages paid to family members or owners, or wages that were not paid during a qualified period.
4. Double-dipping: As mentioned earlier, employers must avoid double-dipping by not claiming the ERC and the credit under section 45S of the Internal Revenue Code for the same wages.

To optimize relief potential while minimizing audit risk, it’s important to carefully review the eligibility requirements and ensure that all documentation is complete and accurate. Employers may also want to consult with a tax professional or advisor for guidance on the claiming process and to avoid common filing problems.