The ERC remains a valuable opportunity for businesses in 2025, but mistakes during the application process can reduce benefits or even lead to penalties. Understanding common pitfalls when claiming the ERC helps ensure you receive the full credit you’re entitled to while staying compliant with IRS rules.
Misunderstanding ERC Eligibility
One of the most frequent errors is misinterpreting who qualifies for the ERC. Businesses must meet either the revenue decline test or the operational disruption criteria.
Revenue Decline Test
To qualify for the ERC, you need to compare current quarterly revenue to pre-pandemic levels and determine if the drop meets the threshold. Incorrect calculations here can disqualify your claim.
Operational Disruption Test
Some businesses overlook partial suspensions due to government orders, which may also qualify them for the ERC. Documenting these events is essential for proof.
Inaccurate Wage Calculations
Calculating qualified wages for the ERC can be complex, especially when factoring in part-time workers, health benefits, and multiple business locations.
Overlapping Credits
Avoid using the same wages for multiple credits, such as the ERC and PPP forgiveness, as this can lead to disallowed claims.
Filing the ERC Incorrectly
Submitting the wrong IRS forms or missing deadlines can delay your refund. The ERC is generally claimed on Form 941 or through an amended 941-X for prior quarters.
Missing Retroactive Claims
Some businesses fail to realize they can claim the ERC for past periods, resulting in lost opportunities for significant refunds.
Poor Documentation Practices
The IRS requires detailed documentation to support ERC claims. Without payroll records, revenue comparisons, and evidence of operational disruptions, your claim could be rejected.
What to Keep on File
- Payroll reports showing eligible wages
- Health benefit records for qualifying employees
- Written proof of qualifying disruptions or revenue drops
- Copies of all ERC filings
Overclaiming the ERC
Claiming more than you qualify for can trigger audits, penalties, and repayment demands. Double-checking figures before submission is critical.
Avoiding Aggressive Third-Party Promises
Some promoters exaggerate ERC eligibility, leading businesses into risky claims. Work with reputable advisors who understand IRS rules.
Ignoring IRS Updates
The ERC rules have evolved since its creation. Failing to keep up with the latest guidance can result in non-compliance or missed benefits.
Staying Informed
Regularly review IRS updates, industry advisories, and professional tax guidance to ensure your ERC claims follow current requirements.
Building a Reliable ERC Strategy
By avoiding common mistakes, businesses can secure ERC refunds more smoothly and maximize their value. This requires careful planning, accurate calculations, and organized recordkeeping.
Conclusion
The ERC offers significant financial rewards, but only if applied for correctly. By understanding eligibility rules, avoiding wage calculation errors, maintaining proper documentation, and staying informed on updates, your business can avoid pitfalls and fully benefit from the ERC. In 2025, careful execution is the key to turning the ERC into a dependable source of funding.
