Category: Retirement

Pandemic-Era Tax Break … Now a Pandemic of Abuse!

At the height of the C-19 pandemic, the Employee Retention Credit (ERC) was introduced to help both business owners and workers maintain payrolls and income respectively. For those businesses that qualify, the ERC is a refundable tax credit intended for employers that continued paying employees … either while shut down due to the COVID-19 pandemic or that had a significant decline in gross receipts during the eligibility periods.

The sheer dollar amount of potential tax credits, plus the administrative burdens to expedite financial relief became an open invitation for fraudsters. In this year’s annual Dirty Dozen summary, the IRS posted the following:

Taxpayers should be aware of aggressive pitches from scammers who promote large refunds related to  the Employee Retention Credit (ERC). The warning follows blatant attempts by promoters to con ineligible people to claim the credit. 

The Service has published at least six warnings about ERC abuse since October 2022, including making it No. 1 on its annual “Dirty Dozen” list of the 12 top tax scams earlier this year.

Profile of Abuses 

The IRS highlighted these schemes from promoters who have been blasting ads on radio and the internet touting refunds involving Employee Retention Credits. These promotions can be based on inaccurate information related to eligibility for and computation of the credit. Additionally, some of these advertisements exist solely to collect the taxpayer’s

personally identifiable information in exchange for false promises. The scammers then use the information to conduct identity theft.

These promoters “present wildly misleading claims about this credit,” reported IRS Commissioner Danny Werfel. “They can pocket handsome fees while leaving those claiming the credit at risk of having the claims denied or facing scenarios where they need to repay the credit.”

You have seen and possibly responded to ads like the following, rampant on TV, radio, print and social media. And the call-to-action is compelling … promise of no up-front fees … just a share of the credit your company receives from the IRS.

Claim Your Business Tax Credit From the IRS!
If you own a business that had employees during the COVID-19 pandemic, contact us today to see if you qualify for up to $26,000 in tax credits per employee. This is not a loan, so there is no need to pay it back. Plus, we don’t get paid unless you are eligible and receive your credit. 

What is the ERC? You Need to Be Cautious. 

In this piece, we offer a summary of the ERC requirements and benefits. Additionally, we’ll share some cautionary thoughts for those of you who are contemplating or have already enlisted the services of a third-party ERC adviser.

The ERC is a refundable payroll tax credit rewarding businesses that continued to pay employees while shut down due to the COVID-19 pandemic or had significant declines in gross receipts from March 13, 2020, to Dec. 31, 2021.

The credit may be as much as $5,000 per employee in 2020 and up to $7,000 per employee per quarter (for the first three quarters) in 2021. That could add up to a maximum credit of $26,000 per employee. Eligible employers can claim the ERC on an original or adjusted employment tax return for a period within those dates.

Employer Eligibility: An employer is eligible for the ERC if it:

• Sustained a full or partial suspension of operations limiting commerce, travel or group meetings due to COVID-19 and orders from an appropriate governmental authority or,
• Experienced a significant decline in gross receipts during 2020 or a decline in gross receipts during the first three quarters of 2021 or,
• Qualified in the third or fourth quarters of 2021 as a recovery startup business.

Click here for more detail on each of the above eligibility requirements.

Filing Deadlines: Employers have until April 15, 2024, to file Form 941-X for the eligible quarters in 2020; and until April 15, 2025, for eligible quarters in 2021.

Note: Wages reported as payroll costs for PPP loan forgiveness or certain other tax credits can’t be claimed for the ERC in any tax period.

Employers … You Need to Be Cautious!  

Third-party advisers are typically new operations put together to capitalize on the preparation of ERC applications for employers. Lack of experience along with aggressive marketing often results in improper advice regarding employer eligibility and computing the amount of credit claimed.

Employers must become aware of the risks associated with engaging third-party promoters. Here are four critical concerns to be addressed:

• Often, third-party advisers do not make it clear to employers that they will need to amend their business’s federal income tax return for the corresponding period because any payroll taxes used in the computation of the credit are no longer deductible.
• Receipt of the refund from the IRS does not preclude the agency from examining the employment tax return and disallowing the credit. Employers are always responsible for the accuracy of the information reported on their tax returns. Improperly claiming the ERC could result in repayment of the credit, plus penalties and interest.
• Employers that have received the ERC may be an audit target given the anticipated expansion of new IRS agent hires.
• In the event the IRS disallows the ERC claim, fees paid to third-party companies may not be refundable.

Employers Considering Engaging a Third-party Adviser

Here are performance criteria to help evaluate the value a prospective adviser brings to the strength of your company’s ERC qualifications, filing efforts and subsequent follow-up.

At your request, a legitimate capable adviser will:

1. Describe its history as tax advisers including whether the practice is exclusively devoted to ERC claims.
2. Detail their policy to provide audit defense plus refund fees if all or part of the ERC claim does not survive an   IRS audit.
3. Not claim a high IRS audit success rate as the IRS audit program is so new that success claims are meaningless.
4. Demonstrate a solid understanding of the facts and circumstances of your business operations before the pandemic as well as during each quarter of the pandemic … with special attention to the wage limits during the first three quarters of 2021?
5. Prepare a written account of the specific state or local governmental orders your business was subject to and a description of the impact of each on your business operations.
6. Review with you any circumstances pertinent to your ERC claim where the IRS guidance regarding ERC eligibility is unclear and that the adviser’s interpretation may prompt scrutiny by the IRS.
7. Not present a sense of urgency for you to act by asserting the available funding for ERC claims is fast being depleted. Not so!  See above for filing claims deadlines.
8. Make it clear to you that qualified wages applied in ERC computations are no longer deductible on your business income tax return?

Employers Who Already Engaged a Third-party Adviser and Filed an ERC Claim  

If you now have second thoughts about the advice that led up to your ERC claim filing, your best next step is to seek counsel from an independent tax adviser to review the merits of your claim and the adequacy of your documentation.

If your independent review results in the recommendation to amend or withdraw your ERC filing (Form 941-X), you may be able to sidestep interest and penalties … along with the time, expense and stress of an IRS audit.

Alternatively, if your independent review delivers written opinion that your claim has a solid foundation based on relevant ERC tax law … at the very least you will be able to demonstrate your intent to honestly pursue support of your claim with appropriate facts.

The above presentation is meant as an overview only.
Give us a call and we’ll quickly help you with questions.

Dozens of Provisions Intended to Improve Retirement Security

The Secure 2.0 Act was signed into law in late December 2022. The legislation builds on the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 to further strengthen the retirement system—and Americans’ financial readiness for retirement.

Surveys conducted by the Fed report a retirement crisis for many Americans:

• only 75% of non-retirees have any retirement savings whatsoever, and
• only 40% feel that their retirement savings are on track.

While version 2.0 of the Secure Act introduces over 90 provisions intended to improve retirement outcomes, here are the 5 Key Takeaways.

• Expanded access to retirement plans,
• Raising the age for Required Minimum Distributions (RMD)
• Limiting costs to withdraw funds,
• Increasing retirement savings, and
• Lost & found database.

Here’s a look at the major provisions of the Act as they relate to the above 5 categories. 

Expanded Access to Retirement Plans 

Beginning in plan years after December 31, 2024, 401(K) and 403(b) plans will be required to automatically enroll participants at the time they become eligible under the plan provisions. All current 401(K) and 403(b) plans are grandfathered. Note: Employees retain the option to not participate.

Initially the automatic enrollment amount is at minimum 3% and no more than 10%. In subsequent years, the amount increases until it reaches at least 10% but no more than 15%.

Prior to enactment of the Secure 2.0 Act, employers were required to allow part-time workers to participate in the employers’ 401(K) plan once they have attained:

• One year of service with 1,000 hours, or
• Three consecutive years of at least 500 hours of service each year.

The new rules reduce the three-year minimum to two years effective January 1, 2025.

Raising the Age for Required Minimum Distributions (RMD) 

Under the old rules, participants were generally required to begin taking distributions from their retirement plans at age 72. Effective January 1, 2023, the new RMD rules raise the age to 73 … with a further increase to 75 on January 1, 2033.

One benefit of the change may be enjoyed by plan participants who choose to move retirement plan assets to a Roth IRA. The amount converted be taxable. That said, Roth accounts don’t require RMDs during the owner’s lifetime … plus qualified withdrawals down the road are tax-free. That is in stark contrast to traditional 401(K) and IRA plans.

Limiting Costs to Withdraw Funds 

Prior to the change in rules, early distributions from tax-advantaged retirement accounts such as 401(k) plans and IRAs are subject to an additional 10% tax. Under the new provision, employees can withdraw emergency expenses from their accounts for “unforeseeable or immediate financial needs relating to personal or family emergency expenses.”

Those emergencies may include withdrawals for:

• Domestic abuse victims
• Individuals with terminal illness
• Qualified disasters

Plan participants are limited to one distribution of up to $1,000 per year and have the option to repay it within three years.  No further emergency distributions are allowed during the three-year repayment period unless repayment has been made.

The emergency withdrawal provisions are effective after December 31, 2023.

Increasing Retirement Savings 

Saver’s Match: The new rules provide for eligible low-income earners who make contributions to retirement plans to receive a nonrefundable tax credit paid in cash. The credit is equal to 50% of plan contributions, up to $2,000 per individual to be deposited in the taxpayer’s retirement plan account.

The tax credit is effective for tax years beginning after December 31, 2026, and is scheduled to phase out between $41,000 and $71,000 in the case of taxpayers filing a joint return ($20,500 to $35,500 for single taxpayers and married filing separate; $30,750 to $53,250 for head of household filers).

Higher Catch-up Limit for Ages 60-63: Employees who have attained age 50 have been permitted to make catch-up contributions up to $6,500 over and above the basic limits. Now, for tax years beginning after December 31, 2024, the catch-up limit is extended for taxpayers between 60 and 63 years old. The new limits … the greater of $10,000 or 50 percent more than the regular limit in 2025.

IRA Catch-up Limit Indexed for Inflation: The Act indexes the contribution limit for years after 2023.

Retirement Savings Lost & Found 

Retirees and plan administrators sometimes lose track of each other’s contact information due to changes in name and/or address. The act mandates the creation of a retirement savings lost-and-found online searchable database to be managed by the Department of Labor. The database is to be established within two years of the date of enactment of the act. The database will allow individuals to search for plans and the contact information of the administrator of any plan in which they are or were a participant or beneficiary.

Have Immediate Questions or Concerns?

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