IRS Highlights New Warning Signs for Businesses Regarding the Employee Retention Credit

In the wake of the COVID-19 pandemic, the Employee Retention Credit (ERC) emerged as a vital financial lifeline for businesses. However, as the IRS intensifies its scrutiny of ERC claims, it has unveiled five new warning signs that businesses must heed to avoid costly mistakes. Understanding these red flags is crucial for maintaining compliance and safeguarding your business from audits, penalties, and interest.

The Rise of Incorrect ERC Claims

The ERC was designed to support businesses that continued paying employees during pandemic-related shutdowns or significant declines in gross receipts. Unfortunately, aggressive promoters have misled many businesses into claiming this credit without meeting the eligibility criteria. The IRS's recent warning aims to protect businesses from such pitfalls by highlighting common errors.

Five New Warning Signs

  1. Essential Businesses Claiming ERC: Many essential businesses, that operated fully during the pandemic, were convinced to claim the ERC. However, eligibility often requires a full or partial suspension of operations due to a qualifying government order. Businesses must reassess their claims to ensure compliance.

  2. Insufficient Proof of Suspension: Businesses must provide adequate documentation to demonstrate how a government order fully or partially suspended their operations. Without this proof, claims may be deemed ineligible.

  3. Family Members’ Wages: Claims involving wages paid to related individuals are often incorrect. Business owners should verify that their claims exclude such wages to avoid inaccuracies.

  4. Overlap with PPP Loan Forgiveness: The ERC cannot be claimed on wages already used for Paycheck Protection Program (PPP) loan forgiveness. Businesses should review their filings to prevent this common error.

  5. Large Employers’ Service Wages: Large employers can only claim the ERC for wages paid to employees who are not providing services. Claims including wages for active employees are likely incorrect.

Avoiding Common Pitfalls

In addition to these new warning signs, the IRS has previously cautioned businesses about other issues, such as claiming too many quarters, miscalculating employee numbers, and citing non-qualifying government orders. Businesses should also be wary of promoters who downplay the risks of incorrect claims.

Taking Action

To navigate these complexities, businesses are encouraged to consult with trusted tax professionals. If errors are identified, the IRS offers a claim withdrawal program and a second ERC Voluntary Disclosure Program to rectify incorrect claims without severe repercussions.

Next Steps

As the IRS continues to refine its oversight of the ERC, businesses must remain vigilant and informed. By understanding and addressing these warning signs, you can ensure your ERC claims are accurate and compliant, protecting your business from potential audits and penalties. For expert guidance and peace of mind, reach out to our office with any questions.

Share this article...

Sign up for our newsletter.

Each month, we will send you a roundup of our latest blog content covering the tax and bookkeeping tips & insights you need to know.

I confirm this is a service inquiry and not an advertising message or solicitation. By clicking “Submit”, I acknowledge and agree to the creation of an account and to the and .

We care about the protection of your data.

Junglebooks Affiliate Program

Why Partner with Us?

With years of experience and a team of certified professionals, we deliver exceptional results to our clients.

Industry-Leading Expertise

Our firm is a leader in the accounting industry, providing comprehensive services that include tax preparation, bookkeeping, financial planning, and business consulting. With years of experience and a team of certified professionals, we deliver exceptional results to our clients.

Attractive Commissions

We value our affiliates and offer competitive commission rates for every client you refer who signs up for our services. The more clients you refer, the more you earn.

Comprehensive Support

We provide our affiliates with all the resources needed to succeed, including marketing materials, dedicated support, and regular updates on our services. You’ll have everything you need to effectively promote our firm and earn commissions.

Trusted Reputation

Our firm has built a solid reputation for excellence and trustworthiness. When you refer clients to us, you can be confident that they will receive the highest level of service and satisfaction.

Frequently Asked Questions

This firm prepares tax returns for individuals, partnerships, corporations, estates, trusts, and any entities with tax-reporting requirements. Our firm’s seasoned professionals are experts in all areas of taxation including:


  • Individual Returns
  • Payroll Tax Issues
  • Business Returns
  • Sales Tax Returns
  • Rental Income Returns
  • Business Consultation
  • Expatriate Returns
  • Fiduciary & Estate Returns
  • Corporation Returns
  • Bookkeeping
  • Partnership Returns
  • LLC Returns

Our firm offers a full range of planning services including, but not limited to:


  • Individual Tax Planning
  • Business Tax Planning
  • Business Organization
  • Rental Properties
  • Foreclosures and Repossessions
  • Retirement
  • Investments
  • Sales and Exchanges
  • Pension Plans
  • Education Planning
  • Finance & Refinance Planning
  • Home Purchase and Sale Planning
We are here for you twelve months a year, not just during tax season. Whether you have a simple tax question, need advice on the tax implications of a business decision, or want clarification on a government notice, feel free to give us a call.
We maintain a policy of the strictest confidence concerning our clients’ affairs. You can rest assured that no one will learn about your business or tax status – even relatives, associates or friends who might have referred you to us.