What If I Claim ERC on Government Orders That Don’t Qualify?

Understanding ERC Eligibility
Understanding ERC Eligibility: Determining Who Qualifies

Key Takeaways

  • The Employee Retention Credit (ERC) is a tax credit for businesses impacted by government orders related to COVID-19.

  • To qualify, government orders must have caused a full or partial suspension of business operations.

  • Not all government recommendations or statements qualify as orders for the ERC.

  • Claiming the ERC incorrectly can lead to the need to amend returns and potential penalties.

  • Businesses must carefully review eligibility for each quarter, as qualifying for all quarters is uncommon.

Understanding ERC Eligibility

Employee Retention Credit (ERC) is a tax credit that was designed to encourage businesses to keep employees on the payroll during the challenges posed by the COVID-19 pandemic. But, just because there was a pandemic, doesn’t mean every business automatically qualifies for the ERC. There are specific requirements, especially concerning government orders, that need to be met.

If you’re eligible, it allows you to claim a percentage of the wages paid to employees, up to a certain cap. However, it’s crucial to understand the qualifications to avoid any issues with the IRS down the road.

Do Government Orders Qualify for ERC Eligibility?

A government order refers to any directive issued by an authority at the local, state, or federal level that mandates certain actions or restrictions. To qualify for the Employee Retention Credit (ERC), your business needs to have been directly affected by such an order related to COVID-19. This impact should be a full or partial suspension of your business operations.

  • A government order must be related to COVID-19 and must have affected your business operations directly.

  • Only orders that caused a full or partial suspension of business activities are considered qualifying orders.

  • Voluntary compliance with government recommendations does not qualify for the ERC.

ERC Eligibility Checklist for Misinterpretation of Government Orders That Don’t Qualify

ERC Eligibility Checklist
ERC Eligibility Checklist: Ensure Your Business Qualifies
  • Check if the order is mandated by a government authority and not just a recommendation.

  • Ensure the order is specifically related to COVID-19 safety measures.

  • Determine if the order had a direct impact on your ability to conduct business, leading to a full or partial suspension of operations.

Consequences of Misinterpretation of Government Orders That Don’t Qualify

If you’ve claimed the ERC based on government orders that don’t qualify, you’re not alone. It’s a common mistake, but one that needs to be addressed promptly. The IRS expects you to comply with the ERC’s specific requirements, and if you don’t, there could be repercussions, such as having to pay back the credit with interest and potentially facing penalties.

  • Repayment of the credit with accrued interest.

  • Potential penalties for inaccurate claims.

  • The necessity to amend tax returns to correct the claim.

  • Increased scrutiny on future tax filings.

Steps to Correct Misinterpretation of Government Orders That Don’t Qualify

What should you do if the government orders your ERC claim is based on do not qualify?

Step-by-step Guide: How to Correct Misinterpretation of Government Orders That Don’t Qualify:  


Understand the criteria for qualifying orders to determine where the discrepancy lies.


If you’ve claimed the credit in error, you’ll need to file an amended return using Form 941-X as soon as possible.


A tax professional can help navigate the complexities of the ERC and ensure your amended return is filed correctly.


If you received funds you were not entitled to, be ready to repay these amounts with any applicable interest.

By taking these steps, you can correct your ERC claim and minimize the impact of the error on your business.

Correcting Employee Retention Credit
Correcting Employee Retention Credit: Steps to Correct Misinterpretation of Government Orders That Don’t Qualify

Prevent Future ERC Errors with ERTC Express

To avoid making similar mistakes in the future, consider working with a professional service like ERTC Express. We specialize in helping businesses like yours navigate the ERC process with confidence.

Here’s why you can trust ERTC Express:

  • IRS Compliance: ERTC Express ensures that your claims are in line with the latest IRS guidelines.

  • Trusted by the AICPA: Their services are recognized and respected by the American Institute of CPAs.

  • U.S.-Based CPAs: You’ll work with certified professionals who understand U.S. tax laws inside and out.

  • Power of Three – Audit Defense: ERTC Express offers a robust audit defense strategy, giving you peace of mind.

  • Refund Maximization: Their experts work diligently to maximize your eligible credit.

ERTC Express
Avoid Future ERC Mistakes: Ensure Accuracy with ERTC Express

Frequently Asked Questions (FAQ)

What are the key indicators that a government order qualifies for ERC?

The key indicators include a government mandate directly related to COVID-19 that affects your business operations, resulting in a full or partial suspension of activities. It’s not enough for the order to be in place; it must have a tangible impact on how your business functions.

How does the IRS identify and penalize non-qualifying claims?

The IRS uses a combination of auditing techniques and reviews of tax filings to identify erroneous claims. Penalties for non-qualifying claims can include repayment of the credit with interest, accuracy-related penalties, and potential legal action in extreme cases.

Can I correct an ERC claim from a previous tax year?

Yes, you can correct an ERC claim from a previous tax year by filing Form 941-X. It’s crucial to address any errors as soon as they are identified to minimize potential penalties and interest.

Where can I find legitimate assistance for ERC claims?

Legitimate assistance can be found through reputable tax professionals, certified public accountants, and services like ERTC Express, which specialize in ERC claims and compliance.

What are the steps ERTC Express takes to prevent erroneous ERC claims?

ERTC Express takes several steps, including a thorough review of government orders against IRS criteria, meticulous documentation, and working closely with clients to ensure all information is accurate and up-to-date. Their goal is to ensure your claim is compliant and maximized, with minimal risk of error.

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