Practical Implications of ERC for Taxpayers and Businesses

Tax credit reminder on a desk.

If you’re in modern day business, you understand the importance of staying agile in your operational approach while continually optimizing your financial strategy. This, simply put, is because: every cent counts when it comes to increasing your bottom line. One way in which to do this in recent times, is the Employee Retention Credit (ERC) Voluntary Disclosure Program. This initiative was introduced to empower businesses during challenging economic climates, and has emerged as a crucial lifeline for many.

But, what exactly is this Employee Retention Credit and can your business benefit from it? Our CPAs, who have helped many businesses understand the ERC and get it right shed light on how to go about making use of it.

Understanding the Employee Retention Credit

The Employee Retention Credit (ERC) was introduced as part of the CARES Act (Coronavirus Aid, Relief, and Economic Security Act) with the sole purpose of providing financial relief to businesses affected by the economic impact of COVID-19. It was later extended and modified by subsequent legislation to enhance its effectiveness in supporting businesses and preserving jobs.

Essentially, the ERC offers businesses a credit against employment taxes. This is to reduce tax liability to encourage employee retainment during challenging economic times.

*As at 29 January 2024, Congress may set January 31, 2024, as the final date to submit Employee Retention Tax Credit claims. Currently, ERTC claims can be made for the 2020 quarters by April 15, 2024, and for the 2021 quarters by April 15, 2025.

Benefits of the ERC Voluntary Disclosure Program

The ERC Voluntary Disclosure Program (ERC-VDP), part of the ERC, is specifically designed to allow businesses to voluntarily disclose and correct any errors or discrepancies in their ERC claims. Essentially, offering your business for ERC audit to the IRS. Here’s how you can benefit from this Program as part of the ERC.

  1. Reduce your repayment amounts: Participating businesses may benefit from reduced repayment amounts as they facilitate compliance with Employee Retention Credit (ERC) regulations.
  2. Don’t pay penalties or interest payments: Being proactive about addressing discrepancies in ERC comes with an incentive to waive penalties and interest as part of the program.
  3. Show transparency: By voluntarily disclosing potential discrepancies, businesses can demonstrate a commitment to transparency and compliance. This inadvertently can mitigate future audit risks.

Who is eligible for the ERC-VDP? 

Businesses, tax-exempt organizations and government entities that are not under criminal investigation or notified that the IRS intends to commence such an investigation can apply. The ERC-VDP is open for application for each tax period that meets the requirements set out by the IRS. Visit their website for a comprehensive list of requirements.

4 Eligibility conditions to consider 

  1. Voluntary disclosure: Businesses must voluntarily disclose any errors, discrepancies, or omissions in their previous ERC claims.
  2. Complete and accurate documentation: Submission should include complete and accurate documentation, addressing the identified issues in ERC claims.
  3. Prove that errors have been investigated: Businesses should demonstrate a good faith effort to rectify errors and comply with the program’s requirements.
  4. Timely submission: Businesses should adhere to the submission deadlines.

How to sign up for the ERC Voluntary Disclosure Program

  1. Review eligibility criteria: If you meet the eligibility rules
  2. Complete Necessary Forms: Download and complete the required forms and complete an application package as follows:
  3. Get expert assistance: With our CPAs having helped hundreds of businesses with these applications, we advise that you consider consulting with a tax expert. This will help to reduce complications and navigate the application effectively to ensure compliance with program requirements.

Why you must apply timeously

When it comes to tax incentives, timing is key, and the Employee Retention Credit (ERC) Voluntary Disclosure Program is no exception. The application deadline is March 22, 2024. 

Applying timeously is beneficial for the following reasons:

  • Maximize benefits: By addressing discrepancies promptly, businesses position themselves to take full advantage of reduced repayment amounts and the waiver of penalties and interest.
  • Show proactive compliance: By voluntarily disclosing potential errors within the specified timeframe, businesses demonstrate a dedication to transparency and adherence to regulation.
  • Mitigate audit risks: By rectifying discrepancies promptly, businesses reduce the likelihood of facing more extensive audits in the future.

What to consider when it comes to repayment

If it is found that your business received ERC amounts that they were not eligible for, you would have to make repayments to the IRS.

The repayment options for businesses participating in the Employee Retention Credit (ERC) Voluntary Disclosure Program can vary. Here are the common repayment options:

  1. Full repayment at once: Businesses have the option to repay the entire amount owed in a single lump sum. This approach ensures a swift resolution, eliminating the need for an extended repayment.
  2. Paying installments: For businesses unable to repay the full amount at once, the program often allows for installment agreements. This involves spreading the repayment over a specified period. While installment agreements provide a structured repayment plan, missed payments may incur penalties or interest. 

ERC-VDP and tax planning: strategic considerations

Participation in the Employee Retention Credit (ERC) Voluntary Disclosure Program extends beyond rectifying past errors. It significantly shapes the trajectory of a business’s tax planning and compliance landscape. This is because there are a number of repercussions on future tax planning.

Deciding whether to participate involves considering eligibility, potential benefits, and financial capacity. For this reason, partnering with a CPA can be useful. CPAs not only aid in deciphering eligibility criteria, but also bring a wealth of expertise to encourage long-term financial sustainability.

The ERC Voluntary Disclosure Program is designed to offer businesses a proactive approach to addressing potential discrepancies in their claims, shedding light on the intricate details of the Employee Retention Credit. 

Fusion CPAs have facilitated countless ERC-VDP applications. We are confident with complex cases and can implement accounting software to help you track your finances to ensure accurate records going forward. Contact us for help today!

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This blog article is not intended to be the rendering of legal, accounting, tax advice, or other professional services. We base articles on current or proposed tax rules at the time of writing and do not update older posts for tax rule changes. We expressly disclaim all liability regarding actions taken or not taken based on the contents of this blog as well as the use or interpretation of this information. Information provided on this website is not all-inclusive and such information should not be relied upon as being all-inclusive.