Employee Retention Tax Audit California — Find Out if You Qualify

EMPLOYEE RETENTION TAX CREDIT audits

Protecting Your Business with Dallo Law Group

At Dallo Law Group, we understand the challenges businesses face when it comes to tax compliance, especially with evolving regulations like the Employee Retention Credit (ERC). With the IRS tightening its scrutiny on ERC claims, it’s crucial for businesses to ensure their filings are accurate and compliant. Our focus has shifted to providing comprehensive Employee Retention Credit Audit services to help businesses navigate through this complex landscape with confidence and peace of mind.

Contact Us

Please enable JavaScript in your browser to complete this form.
Name
How did you hear about us?

ERC Audit Process

01
Initial Notification
The audit process begins with the IRS sending a notification to the business regarding the ERC audit.
02
Document Collection
Upon notification, gather ERC-related documents: payroll, financials, and supporting records.
03
Audit Preparation
Business teams with tax attorney to prep for audit: review docs, ensure ERC compliance, strategize IRS response.
04
IRS Examination
IRS examines business records to verify ERC credits, requesting additional info as needed.
05
Communication and Negotiation
Communication with the tax attorney is vital throughout the audit. They handle all IRS interactions, including inquiries, documentation, and ERC claim negotiations.
06
Resolution
Audit ends with IRS determination letter.

What is The Employee Retention Credit and How Does it Help California Businesses?

The ERC is a refundable tax credit available to eligible California employers who saw substantial reductions in their gross receipts during 2020 and 2021 as a result of the COVID-19 pandemic. The amount of the ERC is based on the wages paid to the employees they kept on the payroll.

Most California employers can still qualify for the credit, including colleges, universities, hospitals, and 501(c) organizations. Eligible employers must show that one of the following applied for the quarter for which it is seeking the credit:

  1. Operations were partially or fully suspended, or hours were reduced due to a government order. The ERC can only be claimed for the time when business was suspended.
  2. The business saw a significant decline in gross receipts. To claim the credit in 2020 the business needed to show a greater than 50% decline in gross receipts compared to the same quarter in 2019. To claim the credit for 2021, the employer only needed to show a decline of more than 20% from the same quarter in 2019.

If your business received a Paycheck Protection Program (PPP) loan it might still qualify for the ERC for wages that were not paid using the proceeds from the portion of the loan that was forgiven.

DOES MY BUSINESS QUALIFY FOR THE ERC?

DID YOUR BUSINESS EXPERIENCE A PARTIAL OR COMPLETE SUSPENSION OF OPERATIONS?

Social Distancing Requirements That Reduced Capacity

Reduction of Hours of Operation

Distribution Delays or Suspensions

Suspended Onsite Work or Client Meetings

OR

DID YOUR BUSINESS EXPERIENCE A SIGNIFICANT REDUCTION IN REVENUE?

2020

50% decrease in revenue/quarter compared to the same quarter in 2019

2021

20% decrease in revenue/quarter compared to the same quarter in 2019

Employee Retention Tax Credit Services

Since the ERC was created in 2020, the IRS has continuously updated the rules and regulations relating to the credit. Claiming the credit or defending an ERC audit both require in-depth knowledge of all of the nuanced rules that apply to the ERC. Our firm is experienced in helping clients in San Diego, Orange County and throughout California in both claiming the ERC and representing clients in ERC audits. The tax professionals at the Dallo Law Group can help businesses that have been hurt by the pandemic get the relief they deserve.

Our firm can assist your business in determining which wages are eligible for the ERC, collect the necessary documentation, and submit the correct forms to the IRS so that you receive the largest possible credit. If your company received a PPP loan, we will work to ensure that you do not claim the ERC on wages paid from the portion of the loan that was forgiven.

Finally, Dallo Law Group can provide representation for your company in CA if the IRS should choose to audit your claim for the credit, whether that occurs before or after you have received a refund on your claim.

How Do You Calculate The Employee Retention Credit?

For qualified employers, the credit can be claimed for 50% of the qualified wages paid from March 13, 2020, to Dec. 31, 2020, up to $10,000 per employee for the year. For wages paid from Jan 1, 2021 through September 30, 2021, employers can claim a credit against 70% of qualified wages, up to $7,000 per employee, per quarter.

The second paragraph: For 2020, employers who had fewer than 100 full-time equivalent (FTE) employees in 2019 could claim the ERC for wages paid to employees for the time period in which they experienced a partial suspension or a significant decline in gross receipts. Employers that had up to 500 FTE employees in 2019 can claim the ERC for wages paid during 2021, for the time period in which they experienced a partial suspension or a significant decline in gross receipts. For 2020, employers with more than 100 FTE employees in 2019 may still claim the ERC for wages paid when the employee was not working. For 2021, employers with more than 500 FTE employees in 2019 may still claim the ERC for wages paid when the employee was not working.

MAXIMUM IRS REFUND = $26,000 PER EMPLOYEE

YOUR MAX 2020 REFUND
$5,000 per employee

YOUR MAX 2021 REFUND
$21,000 per employee

How to Claim The Employee Retention Credit

Employers who believe they are eligible for the ERC can claim it on their federal employment tax returns, usually on their Form 941, Employer’s Quarterly Federal Tax Return. If a business does not claim the credit, but later determines it is eligible, it can file an amended Form 941 claiming the credit. Some businesses may also claim the credit on their Form 944, Employer’s Annual Federal Tax Return, or other employer’s return.

Frequently Asked Questions About The Employee Retention Credit

Employers who are eligible for the credit include those that:

  • Fully or partially suspended business operations due to a COVID-19 government shutdown order, but are only eligible for the times when the order was in force
  • Saw a significant reduction in their gross receipts when compared to the same quarter in 2019

To calculate the ERC, qualifying wages are the compensation paid to an employee during the time period for which the credit is claimed. This includes any health plan expenses the employee received during that period.

If you are a self-employed individual you can’t claim the ERC for any of your self-employment earnings.

Most employers will claim the ERC on their Form 941, Employer’s Quarterly Federal Tax Return, but some will use Form 944, Employer’s Annual Federal Tax Return or Form 943, Employer’s Annual Federal Tax Return for Agricultural Employees

To calculate the number of employees your business had for 2019, for each month you need to identify the number of employees who worked at least 30 hours a week, or 130 hours for the month. You then take the number of employees for each month for the year, add them together, and divide the result by 12. The resulting number is the number of 2019 full-time employees for the purposes of claiming the ERC.