Still looking for your IRS Employee Retention Tax Credit (ERC) check? You’re not alone. Over 1.4 million people may be waiting for their ERC claims to be processed.
But there is some good news on this front. After almost a year following an IRS moratorium on ERC claims processing, the agency announced plans to resume processing claims for this pandemic-era refundable tax credit.
The announcement came after several hundred million dollars in new ERC claims were fraudulently filed and a bipartisan tax deal fell through in Congress that could have ended the ERC program entirely.
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Despite countless problems with claiming the ERC, select businesses are set to potentially receive thousands in tax credit payouts.
When can ERC refunds be expected?
The IRS says it is issuing 50,000 valid ERC claims. The agency has identified these claims as being at “low-risk” of improper filing. When issuing funds for these claims, the IRS will focus on the filing period from September 14, 2023, through January 31, 2024.
Businesses whose ERC claims fall into this category can expect their claims to begin being processed by the tax agency in September. There will likely be additional payouts later in the fall.
IRS ERC audits
Although the IRS is processing low-risk ERC claims, it is still on watch for phony ones. The tax agency has sent 58,000 rejection letters to businesses, amounting to $6 billion in incorrect claims. The IRS also said it has initiated 460 criminal cases involving improper ERC claims.
Here is a breakdown of criminal investigations concerning those cases:
- 37 investigations resulting in federal charges so far
- 17 investigations resulted in convictions
- 9 sentences resulted in an average sentence of 20 months
Thousands of other claims are undergoing audit. Businesses are invited to proactively withdraw their ERC claim if they believe their filing to be erroneous. So far, more than 7,300 entities have withdrawn claims, with a combined total of $677 million in claimed credits.
Voluntary Disclosure. Because of all the incorrect filings, the IRS has temporarily reopened the Voluntary Disclosure Program for businesses to fix their improperly filed claims. If you believe this to be you, you can pay back your errant claim at a 15% discount to the IRS (as well as avoid future penalties, audits, or fees associated with the incorrect claim). But only for a limited time. This program will close after November 22, 2024.
If your ERC was rejected
There may be a limited number of improperly denied ERC claims. If you think that applies to you, here are a couple of steps you can take:
- Respond to the address on the denial letter stating your appeal
- File an administrative appeal using the information on the IRS website
Note: Recent rejection letters may have mistakenly omitted the paragraph about the appeals process. You may receive a follow-up letter from the IRS with this information included.
Employee retention credit claim approval time
The IRS will process the highest and lowest risk claims first. If your business falls more middle-of-the-road in terms of assessed risk, you may have to wait longer for your claim to be processed.
In the meantime, you may receive partial employee retention tax credit payments for valid tax periods (generally quarters) throughout the year. This is because your eligibility can vary from one tax period to the next. For example, you may have received the Paycheck Protection Program loan during one tax period, which would change your ERC eligibility for the next.
With more than 17,000 claims coming in to the IRS every week, and 50,000 new claims getting processed, the agency has undertaken a massively resource-intensive task. The total payout is unknown. The timeline for new claims is unknown. But many businesses may not receive their ERC for months — perhaps even years — in the future.
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