Firms are ‘bombarding’ small businesses with ads for a Covid-era tax credit, advisor says. Here’s how to know if you qualify

 

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Small businesses are facing an onslaught of ads, phone calls and emails to help them claim a pandemic-era tax credit. However, experts urge business owners to review eligibility with a qualified tax professional.

The tax break — known as the employee retention credit, or ERC — was enacted in 2020 to support small businesses during the Covid-19 pandemic, worth up to $5,000 per employee for 2020 or $28,000 per employee in 2021.

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

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

While Hausz’s company has completed at least 100 amended filings for clients to claim the employee retention credit, it has also informed clients when they don’t qualify.

“ERC mills” have popped up, charging small businesses up to 25% to 30% of the credit received, said Kristin Esposito, director for tax policy and advocacy for the American Institute of CPAs.

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

It’s really put a strain on a lot of client relationships.

Kristin Esposito

DIRECTOR FOR TAX POLICY AND ADVOCACY FOR THE AMERICAN INSTITUTE OF CPAS

Esposito said ERC mills may promise business owners they qualify or calculate a larger credit than owners were told by their CPA. “It’s really put a strain on a lot of client relationships,” she said.

After warning business owners about “third parties” promoting the employee retention credit in October, the IRS added the issue to its annual list of “Dirty Dozen” tax scams for 2023.

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

How to qualify for the employee retention credit

One of the challenges of claiming the employee retention credit is complexity, with rules having changed between 2020 and 2021, according to Hausz.

The credit was enacted to keep workers on payroll during the quarters affected by the Covid-19 pandemic. While eligibility was initially from March 13 through Dec. 31, 2020, the timeline was extended through the third quarter of 2021 for most businesses.