The Employee Retention Credit (ERC) was launched as a financial lifesaver for small businesses during the pandemic, and since then, there have been aggressive marketing schemes that could mislead businesses in assessing their eligibility and claiming their credit. As a result, the IRS released several changes to the Employee Retention Credit program over the last few months to add additional safeguards to prevent future abuse of the program and protect small businesses.
Here is everything you need to know to navigate these additional protections.
IRS hits pause on new ERC claims
In September, the IRS announced a moratorium on processing any new ERC claims through the end of this year. During this pause, the IRS is implementing additional measures to deter potential program abuse and shield businesses from deceptive marketing strategies that may lead them astray.
What is the impact?
- Longer Processing Timeline: ERC claim payouts will likely be even more delayed than previously expected. The IRS stated that they will continue to process and payout refunds for claims currently in the queue, but the claims will be processed at a much slower pace due to detailed compliance reviews.
- Confirm Eligibility: The IRS is taking a closer look at ERC claims to better determine eligibility. Those who haven’t filed a claim yet but are considering it should carefully review the ERC guidelines. Businesses can still file a claim during the moratorium. For 2020 tax periods, the deadline is April 15, 2024. For 2021 tax periods, the deadline is April 15, 2025.
Addition of withdrawal program for ERC claims
The IRS has instituted a withdrawal program for businesses that believe they claimed ERC improperly. Claims that are withdrawn will be treated as if they were never filed. The IRS will not impose penalties or interest unless it is found that a business willfully filed a fraudulent claim.
Who can ask to withdraw an ERC claim?
Employers can withdraw their claim if all of the following apply:
- They made the claim on an adjusted employment return (Forms 941-X, 943-X, 944-X, CT-1X).
- They filed the adjusted return only to claim the ERC (i.e. no other adjustments were made).
- They intend to withdraw the entire amount of their ERC claim.
- The IRS has not paid their claim, or the IRS has paid the claim, but the employer hasn’t cashed or deposited the refund check.
- Employers who have been notified they are under audit can send the withdrawal request to the assigned examiner or respond to the audit notice if no examiner has been assigned.
To take advantage of the claim withdrawal procedure, taxpayers should carefully follow the special instructions at IRS.gov/withdrawmyERC.
In addition, the IRS is working on guidance in the coming months to help employers who were misled into claiming the ERC and have already received the payment.
The IRS has also updated a list of FAQs to help businesses understand the ERC in more detail. For further questions, contact your RKL advisor to see if these ERC updates apply to you.
