The Employee Retention Credit: Where We Are and What is Coming
The Employee Retention Credit (ERC) is a COVID-era tax credit that allows employers who meet certain qualifications and have eligible wages to receive a refund of employment taxes paid to the Internal Revenue Service (IRS) for certain eligible quarters in 2020 and 2021. The aim of this tax credit is to shift money back into the hands of businesses that may have suffered losses due to COVID, but kept their employees working during that down time. The deadline for employers to make ERC claims is right around the corner, as any claims for quarters in 2020 or 2021 need to be filed by April 15, 2024 and 2025, respectively.
A lot of discussion related to this credit over the past several months has been about the IRS moratorium put on ERC claims due to concerns about a large amount of fraudulent claims being paid out to taxpayers. This moratorium pauses the processing of any new claims submitted and existing claims that had not fully made it to the final stage to be paid out. To find out more about this topic, see our article published on October 26, 2023. Four months later, and the moratorium put in place on September 14, 2023 is persisting. While no claims have been processed in the past few months, the IRS has been busy with other actions related to the ERC. Last week, IRS Commissioner Danny Werfel met with the Senate Finance Committee to provide an update on the moratorium and the status of the ERC program. He explained that the IRS is working on converting the amended payroll tax returns received to a digital format from the paper versions received in the mail in order to better analyze them, but as of mid-December there were over 1 million unprocessed 941-X forms in the hand of the IRS that had yet to be reviewed, not including any that were previously paid and not scrutinized appropriately. There has also been a withdrawal procedure put in place for taxpayers that may have submitted claims they now believe to be erroneous, so that they can withdraw the claims before being processed and paid out by the IRS.
The most recent news surrounding the ERC is related to new tax legislation being drafted by the Senate Finance Committee and House Ways and Mean Committee to expand the child tax credit and revive certain business tax deductions, like the research & development credit and bonus depreciation. Congress will need to find a way to pay for these new tax cuts and shutting down any future claims for the ERC has been discussed as a potential means to that end. Dive deeper into this potential tax legislation and its impact in this article published by The Hill on January 11, 2024.
So what does this mean for taxpayers? With the risk that the timeframe for claiming the credit may be cut short, it would be best to explore the possibility of ERC eligibility sooner rather than later. Check out the ERC Eligibility Checklist tool on the IRS website. If a business believes it may be an eligible employer, it should act immediately to evaluate that eligibility with a trusted tax professional and they can advise on next steps. Also, if businesses are concerned about any ERC refund claims that have been filed, they should contact a trusted tax professional to determine if the claims should be withdrawn or the funds should be paid back via the voluntary disclosure program.
If you have any questions about your situation, please reach out to the professionals at SDK CPA. You can contact us by phone at 612-332-5500 or through email at info@sdk.com.
