The Employee Retention Credit (ERC), originally a part of 2020 pandemic relief, provided up to $26,000 per employee to help businesses manage financial hardships and retain employees. The plan was to distribute $55 billion over ten years, but the IRS has paid out an unexpected $230 billion due to widespread abuse of the program. This misuse has forced the IRS to freeze new claims and intensify audits, particularly targeting fraudulent claims encouraged by companies aggressively marketing to overly trusting business owners, many of whom are dental practice owners. 

Even with the freeze in place since October 2023, the IRS still receives more than 17,000 new applications weekly. IRS Commissioner Daniel Werfel has voiced concerns over the abuse and called for Congress to create legislation to potentially halt new claims permanently to prevent further misuse. An internal review by the IRS suggested that up to 90% of the evaluated claims could be fraudulent, with some filed by nonexistent businesses or those exaggerating their workforce size. This alarming level of fraud underscores the importance of compliance and the risks associated with opportunistic schemes during crises.

For dental practice owners and managers, the situation highlights the critical need for due diligence when seeking tax credits. Many businesses have been misled by promises of “free ERC money,” resulting in substantial financial and legal repercussions. In fact, many of these companies offering to assist with ERC applications are paid with on a commission structure, incentivizing them to encourage business owners to apply for more than they are due. Once paid, it is impossible to reach these companies, leaving the dental practice owner to repay all of the credit, including the commission, and also face fines as much as $500,000 and up to five years’ jail time.

For those who have filed recent legitimate ERC claims, the ongoing freeze means a delay in processing and uncertainty about when or if funds will be disbursed. If you have filed for the credit and now question its validity, it is possible to withdraw an ERC claim before it is paid. 

Business owners are advised to remain patient and vigilant, ensuring that any claims or financial incentives they pursue are thoroughly vetted and legally sound.

Dental practice owners and managers should thoroughly vet any claims or financial incentives to ensure they are legally sound and consult with knowledgeable professionals who can provide accurate guidance and support. If you have ERC or other tax-related questions, reaching out to one of our experienced advisors to get answers and ensure that your business remains compliant.