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Do you have to pay back an ERC refund?
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Do You Have to Pay Back an ERC Refund?
Lots of folks are wondering if they gotta pay back the money they got from the Employee Retention Credit (ERC). This article will explain everything real simple so you can understand what’s going on.
The ERC is a tax credit that came out during COVID to help businesses keep employees on payroll. If your business qualified, you could get a refund of up to $5,000 per employee for 2020 and 2021.
A tax credit means you get money back from the government. It’s not a loan. So if you qualified and got an ERC refund, you don’t gotta pay it back.
How the ERC Works
Here’s a quick rundown of how the ERC works:
- It’s a refundable tax credit, meaning you get money back from the IRS.
- You claim it by filing IRS Form 941 and reporting qualified wages paid.
- The credit is worth up to 50% of wages paid, up to $5,000 per employee for 2020-2021.
- You can get the refund even if you didn’t owe any payroll taxes.
So it’s basically free money from the government to help retain employees. As long as you qualified, you can keep it!
Common ERC Refund Misconceptions
There’s some wrong ideas floating around about having to pay back the ERC. Let’s bust those myths:
Myth: The ERC is a loan
Nope! The ERC is a tax credit, not a loan. You don’t have to pay it back.
Myth: I’ll have to pay it back later in taxes
Wrong again! The ERC does not create a future tax bill. It just reduces how much tax you owed for 2020-2021.
Myth: The ERC will be clawed back
The IRS isn’t going to “claw back” or take back a proper ERC refund. As long as you qualified, it’s yours to keep.
Myth: The ERC is too good to be true
The ERC refunds are 100% real! The government created this tax credit to help employers retain staff during COVID.
When You Might Owe an ERC Refund Back
Okay, so are there any cases where you’d have to repay an ERC refund? Yes, but only if:
- You got the refund by mistake or fraud.
- You ended up not actually qualifying for the full amount.
For example, if you got $100,000 in ERC but then realized you only qualified for $75,000, you’d have to pay back that extra $25,000. Or if you lied on your taxes to get the credit, you could get in big trouble.
But as long as you qualified honestly and claimed the right amount, you can keep your ERC refund. No takebacks!
The ERC Has Expired
One important thing to know is the ERC program ended on September 30, 2021 for most businesses. So you can’t claim any new credits for 2022 and beyond.
But that doesn’t affect refunds businesses already got for 2020 and 2021 wages. That money is still yours to keep.
You Can Still Amend to Claim More ERC
If you qualified for more ERC than you originally claimed, you can still file an amended return to get additional refund money.
For example, if you only claimed $20,000 in ERC but actually qualified for $30,000, you can amend your taxes to claim that extra $10,000.
Amended returns for the ERC must be filed by December 31, 2024. So you have some time left to get all the ERC refunds you deserve.
The ERC and PPP Loans
Another common question is whether getting a Paycheck Protection Program (PPP) loan affects the ERC. The short answer is:
- You can’t claim ERC on wages used for PPP loan forgiveness.
- But you can claim ERC on other eligible wages.
So having a PPP loan doesn’t make you ineligible for the ERC altogether. It just reduces how much ERC you can claim if you use some wages for both programs.
Conclusion
The bottom line is the ERC is free money to help retain employees, not a loan. If you qualified and got a proper refund, you get to keep it!
Just make sure you claimed the right amount. And if you think you qualify for more, file an amended return before the deadline.
We hope this article cleared up confusion about paying back ERC refunds. It’s your money fair and square!
References
IRS, Employee Retention Credit
IRS, FAQ about the ERC