[ad_1]
We have heard radio advertisements. I’ve seen your tweets. Many small business owners and others have even been inundated with spam calls about how employee retention credits (worth up to $26,000 per employee) can be a real game changer.
If you’re cash hungry, you might be ready to imagine that this tax break will help everyone who’s been forced to keep working during the pandemic.
But that’s not true, is it?
Well, it might sound wacky, but it probably is — and you might lose a lot of money along the way.
One of the problems with chasing big bucks advertised in tweets and radio ads is that you can end up paying big bucks upfront to fast talkers who don’t tell the truth. Problems can also arise with the Internal Revenue Service.
Claiming credit when it shouldn’t can result in having to pay it back, plus interest and penalties. Some small businesses can end up in debt of hundreds of thousands of dollars or more if they file improper claims.
The IRS has once again warned that some outside companies are actively promoting their tax credit program on radio and social media. Worse, people may be arguing with tax professionals about why they suddenly deserve these credits when they really don’t.
The IRS said:
What is an employee retention credit?
This means that we will not be able to pay our employees while our company is closed during the COVID-19 pandemic and our total revenue has been significantly reduced from March 13, 2020 to December 31, 2021. A refundable tax credit for continued businesses.
In 2020, eligible employers could claim 50% of up to $10,000 in eligible wages or health insurance expenditures per employee, or up to $5,000 per employee .
In 2021, you can claim up to 70% of your maximum $10,000 expense at a maximum of $7,000 per employee.
This credit applies to the last three quarters of 2020 and the first three quarters of 2021.
As advertised, you can earn up to $26,000 per employee for two years combined.
more:Is the IRS really sending you a message? No, it’s one of many tax scams.
more:There’s no secret way to get free money or big refunds, warns IRS
more:Thanks to Inflation, Michigan’s Property Tax Bill to Rise in 2023
Why it doesn’t work for most people
Keywords: business. Upfront, you should know that this credit does not apply to individual employees. This is a credit available to businesses, not all taxpayers.
As with many tax laws, especially those created for pandemic-related relief, we’re talking complex guidelines here.
For example, the IRS allows eligible employers to claim retention credits on wages already reported as payroll costs to qualify for Paycheck Protection Program loan forgiveness, or wages used to claim other credits. Note that you can’t.
John Williamson, senior manager of tax policy and advocacy at the American Institute of Certified Public Accountants, says there are many gray areas when it comes to actually qualifying for credit. Some credit and incentive companies use very broad definitions of tax credit terms and requirements to make it look like more companies are eligible when they aren’t, he said. Told.
Pandemic-related credits will no longer be provided for business activities beyond 2022. But ongoing advertising has prompted some companies to amend his previous earnings for 2020 or 2021 to take advantage of the CARES Act’s generous credit.
The Coronavirus Aid, Relief, and Economic Security Act, enacted on March 27, 2020, to encourage eligible employers to maintain employee salaries despite difficult economic conditions, Offered an employee retention tax credit.
Many companies have already claimed credit. But outside companies continue to push the possibilities of radio advertising and social media as options for other companies.
“There is a constant barrage of advertisements claiming these funds are available if you pay your employees through the pandemic,” Williamson said.
The ad seems to indicate that the credit is secure even if it isn’t.
There are two separate and distinct tests, he said. One is to see if total revenue, including sales, has decreased during this period. Another thing he’s looking at is the impact of government shutdowns.
For example, according to Williamson, credit and incentives companies could claim that all their businesses were affected by government shutdowns during the pandemic. But it’s all too common.
As for tax credits, he said we need to consider how the government shutdown has affected business operations. A “business stoppage” claim can be made if the business can prove that the business has been harmed by the full or partial stoppage of operations due to the pandemic.
Who doesn’t pass?
For example, consider a company whose total revenue actually increased during the pandemic. Perhaps the business closed its offices and sent its employees home, but they worked productively from home. Employees were efficient and able to do the same jobs as they did pre-pandemic. Business operations were uninterrupted and the business continued to be profitable. Such businesses are not subject to closure under the employee retention credit definition and are likely not eligible for this credit, Williamson said.
Generally speaking, if businesses can show a significant drop in total revenue when the government restricts “business transactions, travel, or group meetings” due to COVID-19 in 2020 or the first three quarters , he said, is more clear that businesses qualify.
He said he definitely doesn’t want total revenues to fall, but if the pandemic sees a 75% drop, he’ll have a higher level of comfort in claiming retention credits for his employees.
“This is a purely numerical fact that is difficult to question.
who kept working? No, they don’t and never will get credit.
“Putting the word ’employee’ in credits often creates confusion,” says Williamson. Again, it’s the employer’s credit, not the employee’s.
According to Mark Steever, chief tax officer of Jackson Hewitt Tax Services, it’s clear that credit itself is being abused by fraudsters.
“I think most professionals who help or offer to help employers with retention credits are very legitimate and experts in this field,” Steber said.
“But not all, there are simply criminals.”
Scammers use all sorts of methods to engineer a tax refund that has gone awry, including misusing stimulus packages and abusing tax credits offered to new homeowners years ago. looking for.
“Tax incentives and associated cash can attract bad players,” said Steber.
It may sound obvious, but don’t expect to find solid and complete tax advice on Twitter or TikTok. The IRS also warns of other schemes to avoid this tax season.
According to the IRS, one scheme currently being promoted on social media encourages people to use tax software to manually fill out their own Form W-2, wage and tax statements. . You choose an employer, choose an income, and create a fictitious number of taxes already withheld from that fake job.
According to the IRS, people are being told to electronically file fake tax returns “in hopes of getting refunds, sometimes as high as five figures, because of large tax withholdings.”
Taxpayers are responsible for making false claims.
Yeah that’s not a smart idea.
I don’t want to claim a credit or tax refund that I didn’t qualify for.
The IRS issued a similar warning in October, urging people to “beware of advertised schemes and direct solicitations that promise unrealistic tax savings.”
In some cases, the IRS warns that it could overstate wage deductions.
The IRS has warned that promoters are actively misleading people. You should be skeptical and check the guidelines.
If a tax professional questions the accuracy of such a claim and tries to warn you against claiming an employee’s retention credit, act on his or her advice, according to Acting IRS Commissioner Doug O’Donnell. should listen.
“The IRS is actively auditing and conducting criminal investigations related to these false allegations. People should think twice before making these allegations,” O’Donnell said in a statement.
According to the IRS, taxpayers should complete Form 14242.
If a business or individual realizes that the credit should not have been claimed, the IRS and tax experts recommend filing an amended return to correct the exaggerated wage deduction.
Contact Susan Tomper: stompor@freepress.comFollow her on Twitter @TonpoleTo subscribe, please visit freep.com/specialoffer.
[ad_2]
Source link
