The IRS recently shared five new warning signs of incorrect claims by businesses for the Employee Retention Credit. The new list comes from common issues the IRS has seen while reviewing and processing ERC claims.

Aggressive promoters convinced many businesses to claim this pandemic-era credit when they’re not eligible. The IRS urges businesses to carefully review their filings to confirm their eligibility and ensure their claim doesn’t include these warning signs or other mistakes.

Businesses should talk to a trusted tax professional and resolve incorrect claims through the IRS’s claim withdrawal program or the second ERC Voluntary Disclosure Program to avoid issues such as audits, repayment, penalties and interest.

The five new red flags cover these areas:

Essential businesses during the pandemic that could fully operate and didn’t have a decline in gross receipts. Promoters convinced many essential businesses to claim the ERC when, in many instances, essential businesses weren’t eligible because their operations weren’t fully or partially suspended by a qualifying government order.
Businesses unable to support how a government order fully or partially suspended business operations. Whether a business was fully or partially suspended depends on its specific situation. When asked for proof on how the government order suspended more than a nominal portion of their business operations, many businesses haven’t provided enough information to confirm eligibility.
Businesses reporting family members’ wages as qualified wages. If business owners claimed the ERC using wages paid to related individuals, those claims are likely for the wrong amount or ineligible.
Businesses using wages already used for Paycheck Protection Program loan forgiveness. Businesses can’t claim the ERC on wages that they reported as payroll costs to get PPP loan forgiveness.
Large employers claiming wages for employees who provided services. Large eligible employers can only claim wages paid to employees who were not providing services. Many large employers’ claims incorrectly included wages for employees who were providing services during these periods.
The IRS previously issued warnings involving these seven areas:

Too many quarters being claimed.
Government orders that don’t qualify.
Too many employees and wrong calculations.
Businesses citing supply chain issues.
Businesses claiming ERC for too much of a tax period.
Businesses didn’t pay wages or didn’t exist during eligibility period.
Promoter says there’s nothing to lose.

The Educator Expense Deduction lets eligible teachers and administrators deduct part of the cost of technology, supplies and training from their taxes. They can claim this deduction only for expenses that weren’t reimbursed by their employer, a grant or other sources.

Who is an eligible educator
The taxpayer must be a kindergarten through grade 12 teacher, instructor, counselor, principal or aide. They must also work at least 900 hours a school year in a school that provides elementary or secondary education as determined under state law.

Things to know about this deduction
Educators can deduct up to $300 of certain trade or business expenses that weren’t reimbursed. If two married educators are filing a joint return, the limit rises to $600. These taxpayers can’t deduct more than $300 each.

Qualified expenses are amounts the taxpayer paid themselves during the tax year.

Some of the expenses an educator can deduct include:

Professional development course fees.
Books and supplies.
Computer equipment, including related software and services.
Other equipment and materials used in the classroom.
COVID-19 protective items to stop the spread of the disease in the classroom.
More Information:

Topic No. 458, Educator Expense Deduction
Publication 5349, Tax Planning is for Everyone