Protecting Your Business: Employee Retention Credit Scams and Help on How to Avoid Them

Employee retention credit scams have exploded over the past couple years, according to the IRS. Learn more about the most common types of scams and what businesses can do to help avoid them.

Employee Retention Credit (ERC) was part of the initial $2 trillion pandemic relief legislation, which offered qualifying companies up to thousands of dollars per employee if they could prove they were continuing to pay employees despite suffering financial setbacks due to the pandemic. 

Recently, there has been growing concern across employers of scams related to the Employee Retention Credit (ERC) program. What started as a lifeline for many struggling businesses has spawned fraudsters who claim they will help clients claim tax credits, but end up exploiting the complexities of the program and preying on unsuspecting employers who may be unfamiliar with its intricacies. There have been various forms of fraudulent activity related to the ERC ranging from fake consulting services to misleading solicitations promising quick refunds. The IRS even added employee retention tax credit scams to its 2023 Dirty Dozen list of tax scams.  

It is crucial for employers to better understand how ERC eligibility is determined and be aware of these scams to help protect themselves and their businesses from financial loss and potential legal consequences.

Types of Employee Retention Credit Scams 

Fake Consultants and Service Providers

Scammers posing as knowledgeable consultants or service providers claiming expertise in navigating the ERC program  offer to handle the application process or help to maximize credit benefits.

Watchout: If a person or organization is requesting upfront fees or a percentage of the credit as payment, they could be a scammer. Employers should exercise caution when approached by such individuals or organizations and thoroughly vet the credentials of anyone claiming to be an expert in ERC.

Phishing and Impersonation Scams

If you have  received emails or phone calls pretending to be government officials or representatives from tax agencies, these could be fraudsters.

Watchout: If you are receiving phishing emails or phone calls asking you to disclose sensitive information, such as Social Security numbers, EINs (Employer Identification Numbers), or bank account details, this is probably a fraudster. It is essential to be vigilant and verify the legitimacy of any communication before sharing confidential data.

Fraudulent Claims and Overstating Eligibility

Verifying your eligibility and reporting accurate information to the best of your ability when applying for ERC is critical.

Watchout: Some scammers may encourage you to inflate your eligibility for ERC by providing false information or fabricating records to obtain higher credit amounts. You must ensure you understand the eligibility criteria and maintain accurate records to help avoid falling into this trap.

Protecting Your Business from Employee Retention Credit Scams 

Educate Yourself and Your Staff

Stay informed about the ERC program by regularly visiting official government websites, such as the IRS ERC page, or consulting your trusted tax professionals. You can also help by educating your employees about the risks and warning signs of scams to help better create a vigilant workforce.

Verify Credentials

Thoroughly research and verify the credibility of any consultants or service providers offering you assistance with the ERC. Start by checking their credentials and client reviews. A good way to start your research is by investigating word of mouth such as requesting information from trusted colleagues or professional networks.

Work to Maintain Accurate Records

Keep detailed records of employment and financial transactions related to the ERC. This includes payroll information, tax filings, and any supporting documentation from the ERC eligibility period of March 12, 2020 to January 1, 2022. Documents that will  be helpful include:

  • Employer Quarterly Tax Return (Form 941)

  • Payroll tax returns

  • Employee pay records

  • The location of your business and employees

  • Business description

  • Detailed wage information used for a PPP loan and loan forgiveness

  • Records showing workers on a reduced schedule

Accurate records can help prevent false information from being filed and help you to address potential audits.

Report Suspicious Activity

If you encounter any suspicious activity or believe you have been targeted by an ERC scam, report it immediately to the relevant authorities. Notify your local law enforcement, the Federal Trade Commission (FTC), and the Internal Revenue Service (IRS) to help prevent scammers from victimizing others.

Learn More About Employee Retention Credit Qualifications

Employee Retention Credit scams continue to pose a significant threat to businesses seeking to benefit from the ERC program. As these scams increase in sophistication, it is becoming more imperative for employers to take proactive measures to help protect themselves. By staying informed, verifying credentials, exercising caution with communication, maintaining accurate records, and reporting suspicious activity, you can help reduce your vulnerability to Employee Retention Credit scams.

Visit our website to see if you qualify for ERC or to learn more about ERC and see how we can help.