What Are CPA Firms Charging for ERC? A Clear Overview of Fees

Determining the appropriate fees for Employee Retention Credit (ERC) claims has become an evolving challenge for CPA firms.

With the introduction and extension of the ERC to aid businesses through the financial challenges presented by COVID-19, CPAs have been crucial in navigating the complexities of this tax incentive.

The expertise required to ensure compliance and maximize the benefit for clients justifies a careful consideration of the fee structures CPA firms adopt for their services.

CPA firms discussing and reviewing pricing for ERC services in a boardroom meeting

Each firm must factor in the depth of the ERC claims process, regulatory guidelines from bodies like the AICPA, and the intrinsic value of their specialized knowledge.

CPA firms also assess the impact of other relief programs on the ERC while maintaining vigilance against fraudulent activities surrounding ERC claims.

As the scope of ERC services extends beyond the pandemic, CPA firms are continuously adapting their pricing strategies to align with the changing landscape and their clients’ expectations.

Key Takeaways

  • CPA firms critically assess fee structures for ERC claims to reflect the specialized service provided.
  • Compliance with AICPA guidelines and ethical considerations is imperative in determining charges.
  • The dynamic nature of relief programs and the evolving situation post-COVID-19 affect how CPA firms approach ERC services.

Understanding ERC and Its Relevance

The Employee Retention Credit (ERC) emerged as a significant fiscal relief initiative designed to encourage businesses to keep employees on their payroll during the economic disruptions caused by the COVID-19 pandemic. Understanding its origin, who can claim it, and how to calculate eligible wages is crucial for employers seeking this benefit.

Origin and Evolution

The CARES Act introduced the ERC in March 2020 as a response to the economic distress triggered by the pandemic.

Initially, it provided immediate liquidity for employers but has since been amended by the American Rescue Plan Act to extend its availability and enhance benefits for qualifying employers.

These legislative amendments have evolved the scope of the credit, providing a more substantial financial cushion to businesses amidst continued economic uncertainty.

Eligibility Criteria for ERC

Eligibility for the ERC is determined by specific criteria laid out in the stimulus bills.

Eligible employers include those who experienced a full or partial suspension of operations due to government orders related to COVID-19 or a significant decline in gross receipts.

In 2021, the definition of a small employer expanded, allowing a wider range of businesses to qualify for this credit.

  • For 2020: A decline in gross receipts by more than 50% in any quarter compared to the same quarter in 2019.
  • For 2021: A decline in gross receipts by more than 20% in any quarter compared to the same quarter in 2019 or the immediately preceding quarter.

Calculating Qualified Wages

Calculating qualified wages depends on the size of the employer and the relevant period:

  • For small businesses with an average number of 100 or fewer full-time employees in 2019, all employee wages are eligible.
  • For large businesses with more than 100 full-time employees, only wages paid to employees for not providing services are eligible.

Wages considered for the ERC are capped at $10,000 per employee and include certain health plan expenses.

For 2020, the credit is 50% of qualified wages, with a maximum of $5,000 per employee.

In 2021, due to changes under the American Rescue Plan Act, the credit was increased to 70% of qualified wages, up to $7,000 per employee per quarter.

CPA Firms and The ERC Claims Process

A busy office scene with CPA firms working on ERC claims. Papers, computers, and calculators scattered on desks. Professionals discussing and analyzing data

Navigating the Employee Retention Credit (ERC) claims process represents a complex intersection of tax provision application and due diligence.

Certified Public Accountant (CPA) firms play a critical role in interpreting IRS guidance, ensuring compliance with the relevant laws, and bringing to the table a methodology that includes audit assurance and accurate tax return amendments.

Role of CPA Firms

CPA firms are instrumental in facilitating the ERC claims process for businesses seeking to take advantage of available tax credits.

They interpret the evolving IRS regulations under Circular 230, ensuring that each claim complies with the most recent guidelines.

Their expertise helps clients to understand which wages qualify for credits and how to maximize potential benefits.

CPAs apply rigorous due diligence in documenting eligibility and credit calculations, upholding their ethical and professional responsibility.

Audit and Verification Protocols

When handling ERC claims, CPA firms often conduct audit and verification protocols to substantiate the credit amounts being claimed.

Compliance with tax laws is crucial, and the audit process typically involves the review of payroll records, employee counts, and other relevant financial documents.

CPA firms work to ensure that all supporting documentation aligns with the claim and can withstand scrutiny by the IRS, mitigating the risk of penalties or claim denial due to inaccuracies.

Amending Returns for ERC

In instances where a company has not claimed the ERC in a prior quarter, CPA firms can file an amended return using Form 941-X to retroactively claim the credit.

This process requires careful revision of previous filings and a precise calculation of the credit to be claimed.

The CPA firm must ensure that all proper disclosures are made and that the amended return is filed by IRS procedures.

This step not only demands detailed knowledge of the tax code but also an understanding of the intricacies involved in amending payroll tax returns.

Fee Structures for ERC Services

CPA firms adopt varied fee structures when providing Employee Retention Credit (ERC) services. These fee arrangements can significantly affect the cost to businesses seeking to claim the ERC.

Contingency Fees Model

Under the contingency fees model, accountants charge a fee based on a percentage of the tax credit obtained.

Businesses find this model attractive as fees are paid only upon successfully claiming the ERC, aligning the interests of the CPA and the client.

This model can range from 10% to 30% of the credit amount, depending on the complexity and size of the claim.

Traditional Billing Arrangements

Alternatively, CPA firms might operate on traditional billing arrangements, which typically involve hourly rates or a fixed price for services rendered.

Hourly rates vary widely but can provide a predictable cost structure for companies familiar with their CPA’s billing practices.

Fixed prices, meanwhile, offer a single, clear cost for the entire ERC claim process.

Understanding Referral Fees and Commissions

Some CPA firms may engage in referral agreements, where they pay or receive referral fees for directing business toward a specialist.

While permissible, the American Institute of Certified Public Accountants (AICPA) states that CPAs must ensure that commissions or referral fees do not compromise their objectivity or professional judgment.

CPA firms may also receive commissions for endorsing third-party services or products related to the ERC claims process.

Regulatory and Ethical Considerations

CPA firms discussing ERC fees in a boardroom meeting, with charts and graphs displayed on a screen

When CPA firms charge for the Employee Retention Credit (ERC), they must navigate a complex landscape of IRS regulations, adhere to professional standards, and guard against the risks of non-compliance and fraud.

IRS Regulations and Compliance

The Internal Revenue Service (IRS) mandates rigorous compliance for tax preparers under Circular 230, which outlines duties and restrictions related to practice before the IRS.

CPA firms must ascertain the correctness of their tax return positions concerning the ERC and maintain conformity with the applicable IRS provisions. Failure to adhere to these guidelines can result in significant penalties.

Accounting Professional Standards

The American Institute of CPAs (AICPA) sets forth professional standards that CPAs must follow, including the imperative to avoid the preparation of fraudulent claims.

Guidelines published by the AICPA stress that CPAs uphold principles of integrity and objectivity. Charging for ERC claims should also align with the AICPA’s Tax Section advisories on ethical practices.

Risks of Non-Compliance and Fraud

Non-compliance with federal regulations or engagement in fraudulent activities can have severe repercussions.

CPA firms face heightened scrutiny in ERC matters and must be vigilant in their due diligence processes to prevent fraud.

An ERC audit could result in substantial fines and reputational damage if inaccuracies or deceitful conduct is uncovered. Therefore, they must exercise consistent diligence in their efforts to ensure compliance and accurate claim preparation.

Impact of Other Relief Programs on ERC

CPA firms calculating ERC fees, surrounded by graphs and charts. In the background, other relief programs and their impact are depicted

The Employee Retention Credit (ERC) has specific interactions with other relief programs, notably the Paycheck Protection Program (PPP) loans, which directly affect CPA firms’ billing for ERC claims.

Compliance nuances, such as the reconciliation between the ERC and PPP, and the effects of government orders can shape the calculation and the eventual credit businesses may receive.

Interaction with PPP Loans

Under the ERC guidelines, firms must carefully navigate the interaction between the ERC and PPP loans.

Firms must ensure that wages used to obtain forgiveness of PPP loans are not also used for claiming the ERC. This prevents a “double-dipping” scenario.

Therefore, firms should conduct thorough analyses of payroll records to determine the PPP loan-covered period and properly allocate payroll costs to maximize the ERC benefit without infringing on PPP provisions.

Effects of Government Orders

The determination of eligibility for the ERC can be influenced by government orders.

Businesses that experienced a full or partial suspension of operations due to government-imposed restrictions may qualify for the credit.

CPA firms must assess the impact of these orders on a client’s operations, considering factors such as a significant decline in gross receipts or being classified as a recovery startup business, to precisely estimate the credit for which a business might be eligible.

Precautions Against ERC-Related Scams

CPA firms discussing ERC pricing, surrounded by caution signs and security measures

As CPA firms navigate the complexities of Employee Retention Credits (ERC), vigilance against fraudulent schemes is essential. They must ensure compliance with the guidelines set forth by the IRS, especially those elaborated in Notice 2021-49 while being wary of scams that could lead to a criminal investigation.

Key precautions include:

  • Verification: Firms should confirm the legitimacy of third-party ERC advisors. Background checks and references are a safeguard against deceptive practices.
  • Awareness: Stay informed of common scams such as those promising guaranteed credits or inflating employee wages to extract higher credits.
  • Consultation: CPA firms are encouraged to consult official IRS communications for accurate information on ERC claims to avoid misinformation.
  • Policies: Implement stringent internal policies for due diligence and documentation to fortify against illegitimate ERC claims.

These policies should include:

  1. Training staff to identify red flags in ERC applications.
  2. Maintaining meticulous records for all claims to substantiate compliance if audited.
  3. Advising clients to steer clear of too-good-to-be-true offers from so-called “ERC specialists”.

It is paramount that CPA firms remain informed and cautious, as the IRS has indicated an intention to clamp down on inappropriate ERC claims, which can include substantial penalties or legal repercussions for firms caught in such schemes.

Firms should also proactively engage with clients about these risks, emphasizing the need for honesty and transparency in ERC filings.

Future of ERC Claims Post COVID-19

CPA firms discussing ERC claims post-COVID-19. Charts and graphs on a conference table, with professionals engaged in conversation

As the COVID-19 pandemic subsides, CPA firms are navigating the evolving landscape of Employee Retention Credit (ERC) claims.

During the height of the pandemic, many businesses experienced a significant revenue decline due to governmental orders, leading to a surge in ERC filings. The credit was part of COVID-19 relief efforts to motivate employers to keep staff on the payroll.

Going forward, the criteria and demand for ERC claims are likely to change. Businesses are slowly recovering from the financial impact of the pandemic, which may reduce the eligibility for such credits.

CPA firms must stay abreast of Congressional updates and IRS guidelines, as they will impact how the firms process future ERC claims.

  • Eligibility for ERC: Firms will assess eligibility based on updated criteria reflecting the post-pandemic economic climate.
  • Filing Process: As measures against abuse are implemented, CPA firms will adapt to stricter documentation and filing procedures.
  • Audit Risk: Companies and their CPA advisors must be prepared for increased scrutiny and potential audits by the IRS.

There has been a moratorium on processing new ERC claims, highlighting the importance of accuracy and compliance in submission.

Firms must ensure legitimate claims while weeding out those that may arise from aggressive promotion or misconstruction of the credit’s intent. The focus remains on protecting the small to medium-sized enterprises that the ERC aimed to support.

Services related to ERC may no longer drive business as they did at the peak of the pandemic. Nonetheless, the demand for consultation and compliance work persists.

CPA firms will continue to evaluate the cost of ERC claims services based on the complexity of each case and the evolving nature of the legislation.

Additional Resources and Continuing Education

CPA firms discussing ERC pricing, with charts and graphs on a conference table

In the evolving landscape of financial regulations and credits, such as the Employee Retention Credit (ERC), CPA firms recognize the necessity of staying informed through professional development and regulatory updates. Continuous education ensures CPA firms provide accurate and strategic advice to clients.

CPA Professional Development

CPA firms prioritize continuous professional development to stay abreast of the latest tax regulations and best practices.

Various entities offer Continuing Professional Education (CPE) programs, enabling professionals to refine their expertise and stay competitive.

The American Institute of Certified Public Accountants (AICPA) and the Chartered Institute of Management Accountants (CIMA) both provide valuable resources and educational materials, ensuring CPA firms hone their knowledge and skills effectively.

  • AICPA: Offers extensive CPE and learning resources tailored for the ever-changing demands of the accounting field.
  • CIMA: Focuses on enhancing strategic, financial, and operational abilities through comprehensive professional development courses.

Regulatory Updates and Industry Best Practices

Keeping up with regulatory updates is crucial for CPA firms advising on matters like the ERC.

These regulations can be complex, often requiring thorough analysis and understanding to navigate effectively.

  • Treasury Department Circular No. 230: CPA firms must align with its guidelines to maintain compliance in practice standards.
  • Tax Section Odyssey: A platform where CPA firms can access information on regulatory changes, ensuring their services reflect current legal expectations.

For the latest industry news and resources on ERC, Tax Section Odyssey provides tailored insights for CPA professionals to maintain best practices. CPA firms leverage these resources to help their clients navigate the complexities of tax credits like the ERC efficiently and with confidence.

Frequently Asked Questions

When seeking guidance on the Employee Retention Credit, understanding the costs associated with professional services is crucial for businesses. This section addresses common queries about the pricing practices of CPA firms for ERC claims.

How much do accountants typically charge for ERC preparation services?

Accountants commonly set their fees for ERC preparation based on the complexity of the claim and the size of the client’s business.

The charges can range from a flat fee for smaller, simpler claims to a higher-tiered fee structure for larger, more complex cases.

What are the standard contingency fees for CPA firms handling ERC claims?

Standard contingency fees for CPA firms handling ERC claims can vary widely.

Firms might charge anywhere from 15% to 40% of the total credit amount obtained for the client. Clients need to discuss these fees upfront.

Are ERC preparation fees tax-deductible?

Generally, fees paid for ERC preparation services can be considered tax-deductible as a business expense.

However, it’s recommended for businesses to consult with their tax advisor for specific guidance as regulations may change.

What is the average cost for professional ERC claim assistance in 2021?

The average cost for professional ERC claim assistance in 2021 was influenced by market demand and could vary based on the service provider.

Fees differed primarily on firm size and the complexity of the client’s financial situation.

Do ERC specialists charge a referral fee, and if so, how much?

Some ERC specialists do charge a referral fee for directing businesses to a CPA firm.

The referral fee can be a percentage of the first engagement’s fees or a flat rate; the actual amount would depend on the agreement between the specialists and the CPA firm.

Is it common for CPA firms to charge a percentage of the ERC credit obtained?

It is common for CPA firms to charge a percentage of the ERC credit obtained.

This contingency fee model aligns the firm’s incentives with the success of the credit claim, potentially providing better outcomes for both the client and the firm.

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