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Issue Number:  2023-05

Inside This Issue

1. Employee Retention Credit warning signs and steps to avoid improper claims
2. Important information for employers and payroll providers about withholding
3. Wisely choose third-party payroll providers
4. FAQs issued on changes to COVID-19 coverage and payment requirements after Public Health Emergency expires
5. New forms and publications on IRS.gov

  1.  Employee Retention Credit warning signs and steps to avoid improper claims

The IRS continues to see the aggressive marketing of the Employee Retention Credit (ERC), also sometimes called the Employee Retention Tax Credit (ERTC), preying on innocent businesses and payroll professionals. Aggressive promoters present wildly misleading claims about this credit. They can pocket large fees while leaving those claiming the credit at risk of having the claims denied or facing scenarios where they need to repay it.

When properly claimed, the ERC is a refundable tax credit designed for businesses that continued paying employees while shut down due to the COVID-19 pandemic or that had a significant decline in gross receipts during the eligibility periods. The credit is not available to individuals.

The IRS reminds anyone who improperly claims the ERC (or ERTC) that they must pay it back, possibly with penalties and interest. A business or tax-exempt group could find itself in a much worse cash position if it has to pay back the credit than if the credit was never claimed in the first place. So, it's important to avoid getting scammed. IRS news release 2023-105 goes into details about the following topics:

• How businesses and others can protect themselves
• How the promoters lure victims
• Properly claiming the ERC
• Warning signs of aggressive ERC marketing

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  2.  Important information for employers and payroll providers about withholding

With the end of the tax year 2022 filing season completed, it’s an excellent time to remind the payroll community to share with their clients and employees that the IRS Tax Withholding Estimator is available anytime they just want to check on their own withholding or if they have a life changing event and need to adjust their withholding to avoid a surprise tax bill next year.

The IRS also encourages payroll professionals to review their withholding calculations following the rules as outlined in Publication 15 (Circular E), Employer’s Tax Guide and the additional withholding guidance in Pub 15-T. This helps verify that the proper amount is being withheld from employees’ pay.

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  3.  Wisely choose third-party payroll providers

The IRS recommends all payroll professionals to share this special tax tip with clients and partners: “Picking the right third-party payroll service provider helps protect businesses.”

Most third-party payroll service providers provide quality service. However, if a business contracts with an unreliable or fraudulent provider, that can lead to missed tax deposits, theft or returns not being filed. This is costly for the affected business because they’re legally responsible for reporting and paying the taxes due, regardless of whether the third-party payroll service provider makes their required deposits and payments.

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  4.  FAQs issued on changes to COVID-19 coverage and payment requirements after Public Health Emergency expires

The Department of Health and Human Services (HHS) ended its COVID-19 pandemic Public Health Emergency on May 11, 2023.

The IRS, Department of Labor and HHS jointly issued frequently asked questions, Part 58 and Part 59 to clarify how the COVID-19 coverage and payment requirements under the Families First Coronavirus Response Act and the Coronavirus Aid, Relief and Economic Security Act will now change.

With the pandemic emergency ending, plans and issuers will no longer be required to provide coverage for COVID-19 testing items and services. If they do provide such coverage, they may charge for these services or impose prior authorization approvals or other medical management requirements for them.

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  5.  New forms and publications on IRS.gov:

Forms:

• Form W-4, Employee's Withholding Certificate (in Russian)

Publications:

• Publication 1335, Backup Withholding Questions and Answers
• Publication 1693, SSA/IRS Reporter Newsletter

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