The Employee Retention Credit (ERC) was introduced as part of the CARES Act in 2020 to help businesses retain employees during the economic hardships brought on by the COVID-19 pandemic. The ERC provides eligible employers with a valuable tax credit, but as many have experienced, the IRS processing of ERC claims has been subject to significant delays. On September 14, 2023, the IRS issued a news release stating that it is imposing an immediate moratorium on processing new Employee Retention Credit (ERC) claims. Under the moratorium, new ERC claims will not be processed until sometime after December 31, 2023.
Understanding ERC Delays
The delays in processing ERC claims have been a source of frustration for both businesses and the IRS. There are several factors contributing to these delays:
- Complexity of Legislation: The ERC is a complex tax credit program with multiple eligibility criteria and changing rules due to evolving legislation. Understanding and correctly applying these rules can be challenging.
- High Volume of Claims: The IRS has been inundated with a high volume of ERC claims. Not all of these claims are being filed correctly, and many are actually the result of aggressive promotion and scams by unqualified organizations. This surge in demand has placed a strain on their processing capabilities, leading to delays. The IRS reminded taxpayers that any improperly received ERC payments must be repaid and may be subject to interest and penalties.
- Manual Processing: The IRS often manually reviews ERC claims to verify eligibility, which is a time-consuming process. Additionally, limited staffing resources have further slowed down the processing.
- Evolving Guidance: As the pandemic unfolded, the government released guidance that clarified and expanded the ERC provisions. Many businesses had to amend their claims to comply with these updates, further contributing to processing delays.
IRS Advice for ERC Claims
To ensure your ERC claims are processed efficiently, it’s essential to follow the proper steps and guidelines:
- Confirm Eligibility: Before filing a claim, ensure that you meet the eligibility criteria. Eligibility requirements may have changed over time, so review the most up-to-date IRS guidance. Visit the IRS site here to review eligibility requirements and review Frequently Asked Questions.
- Gather Required Documentation: Proper documentation is crucial for ERC claims. You’ll need to provide evidence of your business’s eligibility and the qualifying wages paid to employees. Maintain records of payroll documents, financial statements, and other relevant paperwork.
- Enlist Professional Help: Beware of potential scams and make sure you are using a reputable accounting professional to help you with your ERC filing. Accurate calculations are essential for ERC claims. Making sure eligible wages and credit amounts are calculated correctly can help to avoid additional delays or potential audits. Working with the experts at SDK can give you peace of mind that the submission is being done correctly and that all information has been properly reviewed before submission.
- Be Patient and Persistent: Given the IRS’s processing backlog, it’s important to be patient and persistent. The IRS will continue to process existing claims during the moratorium. ERC claims currently awaiting processing will be subject to increased compliance scrutiny. The processing time goal for current ERC claims will be increased from 90 days to 180 days, with the potential for a significantly longer time if the IRS determines further scrutiny or documentation is necessary. The IRS cautioned that wait times for refund payments for existing claims will also be increased.
The ERC has been a valuable lifeline for businesses trying to weather economic challenges, especially during the COVID-19 pandemic. While processing delays at the IRS have been frustrating, following proper filing procedures and staying informed about eligibility criteria and updates can help expedite the process. If you have any questions on filing an ERC claim, reach out to the professionals at SDK CPA today to discuss your situation. Contact us by phone at 612-332-5500 or through email at firstname.lastname@example.org.