7 Ways to Avoid Employee Retention Credit Scams

employee retention credit scams
Table of Contents

Key Takeaways:     

  • The Employee Retention Credit (ERC) is a huge stimulus program created by the CARES Act that allows eligible employers to get up to $26,000 per employee as a payroll tax credit
  • Employee Retention Credit Scams to be aware of include false ERC advisors trying to get your money, servicers that submit incorrect claims, and identity thieves
  • How to avoid ERC scams

    1. Be wary of any inquiry
    2. Contact the IRS when in doubt
    3. Fully vet any service you use
    4. Learn ERC basics
    5. Ask about audit defense services
    6. Ask for clarity about pay structure
    7. Report scams to the IRS

  • Scammers may also demand tax payments from you, claim your refund has been recalculated, or claim you are owed another stimulus check to get your sensitive information

The Employee Retention Credit (ERC) has ended, but qualifying businesses can still claim the credit retroactively. An unfortunate reality is that scammers use every opportunity available to get people’s personal and financial information. The ERC is no different, so business owners should be on the lookout for common and ever-changing scams.

Learn what you can do to protect yourself against these threats here. This guide covers the basics of the ERC, common tactics scammers use to trick people, and seven ways to avoid Employee Retention Credit Scams.

What Is the ERC?

The Employee Retention Credit was introduced as part of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) of 2020. It is a fully refundable tax credit designed to incentivize employers to keep employees on their payroll during difficult economic times. The ERC still applies retroactively for qualifying quarters in 2020 and 2021, for up to three years from the date the initial tax return was filed.

The ERC provides a credit up to 50% of qualified wages paid per quarter of up to $10,000 per employee for wages earned between March 13, 2020, and Dec. 31, 2020. The credit was increased to 70% in 2021, for up to $10,000 per employee per quarter, until Sept. 30, 2021, for most businesses. So, in 2020, the total possible credit is $5,000 per employee per year, and in 2021, the total possible credit is $21,000 per employee per year (or $7,000 per quarter).

Qualified wages include salary, vacation pay, parental leave pay, and health benefits. There are two ways to qualify: You must have had operations fully or partially suspended due to a government order or had gross receipts decline by more than 50% in 2020 and 20% in 2021 when compared with the same quarter in 2019.

The ERC is substantial and is a great incentive for employers who wish to retain employees but can’t afford to do so without financial assistance. As with any tax relief program, however, there are risks of tax fraud. Discussing your situation with a tax expert is always a good idea if you have questions.

Employee Retention Credit Scams

The ERC can provide businesses with many thousands of dollars to help them through challenging financial times. There has, however, been an increase in scams targeting businesses that may not know how to properly use or access this and other tax credits. Here are common Employee Retention Credit Scams:

False ERC Advisors

One common scheme is the false advisor scam. A fraudster will pose as an ERC expert and offer to help businesses apply at little or no cost. The scammer may also request an upfront fee for their services, but instead of filing documents correctly, they pocket the money. 

Always research professional advisors thoroughly and make sure they are registered with the relevant governmental bodies before engaging their services.

Submitting Incorrect ERC Claims

Some ERC scammers pretend to be tax specialists and provide incorrect ERC claims to the IRS on your behalf. This leads to ERC fraud, and unfortunately you will be liable for your tax return information. They may overstate your credit so they can keep the money, and when you’re audited, these fraudulent companies are nowhere to be found.

Identity Theft

Another type of Employee Retention Credit Scam is identity theft. Fraudsters will try to steal personal information such as Social Security or bank account numbers to file for credits using your identity. Ensure that all sensitive information is kept secure and never shared with anyone outside of a trusted network of advisors and the IRS. 

Scammers may send you fake emails or text messages, or they may call you, claiming to be from the IRS or other government agency. Don’t click anything in these messages or provide your information. 

Filing False Claims

One of the most common scams associated with employee retention credit is filing false claims for credits that were not earned. Scammers may submit fake documents and records to claim the credit, which results in the government paying out funds that were not rightfully earned.

Using Fake Employee Information

Scammers may also use fake employee information to improperly claim the credit. This involves creating false employees or using the identities of other individuals to fraudulently claim credits.

Inflating Wages

Another scam involves inflating wages to increase the amount of employee retention credit received. This involves falsifying payroll records and reporting higher wages than what was actually paid to employees in order to receive a larger credit.

Claiming Credits for Ineligible Employees

Some scammers may also try to claim employee retention credits for ineligible employees such as family members or contractors who are not considered actual employees under IRS guidelines.

Always be aware of who you’re working with and don’t give your information to just anyone. Remember that the details you have to provide for tax purposes are sensitive, so fraudulent individuals and businesses are always looking for ways to access that information or get access to quick money. 

Seven Ways to Avoid Employee Retention Credit Scams

Employee retention credit scams can be costly and disruptive to your business, so it’s important to protect yourself by understanding how these schemes work and the precautions you can take. The key to avoiding ERC scams is knowing how they target businesses and which tactics they use. Here are seven things you can do:

1. Be Wary of Any Inquiry You Receive

Anytime you’re asked to provide personal details or financial information to someone, be cautious right away. This is especially true if you receive an email, text message, or phone call. 

The IRS states that it usually initiates contact through regular mail. The agency may, however, visit a home or business or make a call if there is an overdue tax bill, to get a delinquent tax return or employment tax payment, or as part of an audit. 

Keep in mind that scammers who call you claiming to be IRS agents may be aggressive and threatening, which isn’t how the IRS would treat you. But the IRS “does not use email, text messages or social media to discuss tax debts or refunds with taxpayers.”

2. Contact the IRS When in Doubt

You may be hesitant to reply to a legitimate IRS notice you receive in the mail because of potential scams. It is easy to contact the IRS to confirm that the communication you received is from the agency and not a fraudulent party. Do this before replying to anything you’re unsure of, even if it looks valid. Call 800-829-1040 to reach the IRS.

3. Fully Vet Any Service You Use 

It’s easy to trust a business that says it can help you claim the ERC. Some are even legitimate businesses that end up engaging in fraudulent behavior in an attempt to get more money. Ask any business you’re considering questions about how long they’ve been in operation, since many fraudulent ERC companies have opened very recently.  

Ensure the company will provide all supporting documentation to you so you can see the conclusions it came to and how they reached them. The company should also provide you with proof in the event of an audit.

4. Learn the Basics of the ERC

Tax law may not be your thing, but you can still learn the basics so you have a general understanding of how businesses qualify and what wages you can claim. Doing your research before working with a third party helps you notice a red flag or an inaccurate number. Make sure you can view all documentation from the service to verify everything.

5. Ask About Audit Defense Services

You also need to know if a company or tax specialist will help you in the event of an audit. Legitimate businesses and accountants will be able to support you. Ask the servicer how this will work and get it in writing. A fraudulent company will not be able to give you assurance about audit defense. 

6. Ask for Clarity About Pay Structure

It’s important to understand exactly how the third party you work with will get paid. Do you have to pay upfront or only when the claim is filed? How do they want to receive their payment? You never want to send money to a different third party via wire transfer, for instance. 

Also be skeptical of paying upfront fees, and be aware that the servicer should never promise you’ll get a refund before knowing your situation.

7. Report Scams to the IRS     

You may already know what scam emails look like, also called phishing scams. These happen when scammers contact you to try to get you to click a fraudulent link or complete a form to get your information. 

You can forward these emails directly to the IRS at phishing@irs.gov or call the IRS at 800-829-1040. You can report IRS imposter scams to the Treasury Inspector General for Tax Administration by calling 800-366-4484.

The best way for businesses to protect themselves against scams involving tax credits is both simple and effective: Do your due diligence before hiring any advisors, keep personal information secure at all times, and don’t fall victim to promises of easy money or quick returns. Employee Retention Credit scams can have serious consequences for businesses, so you need to protect yourself. Talk to an ERC professional who can help you navigate the process.

Other Common Tax Scams

Tax fraud is prevalent throughout the year, but it can be particularly common around tax season. The COVID-19 pandemic also brought out more scams and criminals trying to get money. ERC scams are critical to watch for, especially if you’re not familiar with applying for business tax credits. Here are a few more common tax schemes to watch out for:

Demanding Tax Payments

This scam usually happens with a phone call from a scammer, and they may leave you a voice message. They’ll tell you that you owe taxes and may be hit with a criminal charge if you don’t take care of it. The fraudster will demand you pay them if you talk to them. They may ask for money in the form of cash or even gift cards for various stores.

Claiming Your Refund Has Been Recalculated

Another common scam is when someone contacts you to let you know your refund needs to be recalculated. They will claim you’ll get more money back in order to trick you. 

These may come in the form of emails or text messages and will include a link where they want you to provide your sensitive personal information, like your Social Security number, date of birth, financial information, or driver’s license number.

Claiming You Are Owed Another Stimulus Payment

The government issued stimulus checks during the pandemic to help taxpayers. Criminals have been reaching out to taxpayers claiming they are eligible to receive another payment since that time. This, again, usually involves sending a fraudulent link to try to collect personal information.

Watch out for these three additional scams, which are common around tax time but may happen throughout the year. The best thing you can do is to be on alert and question any inquiry you receive, even if the person claims to be from the IRS. 

What to Do if You have been a Victim of Employee Retention Credit Scams

  1. Contact the IRS immediately and report the scam.
  2. File a complaint with the Federal Trade Commission (FTC) at ftc.gov/complaint.
  3. Contact your bank or credit card company if you gave out any financial information.
  4. Freeze your credit to prevent any unauthorized accounts from being opened in your name.
  5. Change all passwords associated with your accounts that were compromised.
  6. Check your credit report for any suspicious activity or accounts that you didn’t open.
  7. Consider placing a fraud alert on your credit report to prevent anyone from opening new accounts in your name without proper verification.
  8. Be cautious of unsolicited emails, text messages, or phone calls asking for personal information or claiming to be from the IRS or other government agencies.
  9. Educate yourself about common scams and how to protect yourself from them in the future.
  10. Stay vigilant and monitor all of your financial accounts regularly for any unusual activity or charges.

Remember, it’s important to act quickly if you suspect that you have been a victim of a scam in order to minimize any potential damage and protect yourself from further harm.

Contact ERC Today With ERC Scam Questions

One of the most significant steps you can take when applying for the ERC is to work with a reputable company. Experts can help you determine eligibility, calculate your credit, and file everything properly with the IRS. Just make sure you avoid ERC scams by vetting businesses before working with them and being very careful about who you share your information with. Remember to be cautious if someone contacts you claiming to be from the IRS.

The team at ERC Today is ready to help you claim your credit in a straightforward, transparent manner. We provide fast and easy services, so your business can get what you’re owed sooner. You will use our secure client portal where all your sensitive information is protected. We also provide an initial ERC estimate at no cost to you.

Reach out to ERC Today to learn more about our tax credit and consulting services. You can also start your application online in moments.

Employee Retention Credit Scams FAQs

Some precautions businesses can take to avoid Employee Retention Credit scams include being wary of any inquiry they receive, contacting the IRS when in doubt, fully vetting any service they use, learning the basics of the ERC, asking about audit defense services, asking for clarity about pay structure, and reporting scams to the IRS.

You can confirm if a notice received from the IRS is legitimate or not by contacting the IRS before replying to anything you’re unsure of, even if it looks valid. Call 800-829-1040 to reach the IRS.

Businesses should ask an ERC service provider questions about how long they’ve been in operation, how they came to their conclusions, whether they will provide all supporting documentation, if they offer audit defense services, and for clarity about their pay structure.

Businesses should learn the basics of the ERC so they have a general understanding of how businesses qualify and what wages they can claim. They should also do their research before working with a third party to help claim the credit and make sure they can view all documentation from the service to verify everything.

Businesses should report scams to the IRS by forwarding scam emails directly to phishing@irs.gov or calling the IRS at 800-829-1040. They can also report IRS imposter scams to the Treasury Inspector General for Tax Administration by calling 800-366-4484.

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