Many businesses are still waiting to receive payouts from the Employee Retention Tax Credit (ERC), a pandemic-era tax credit designed to assist qualified employers who paid wages to employees between March 12, 2020 and Jan. 1, 2022.
Despite the continuation of a moratorium on processing new claims that was extended through this summer, the IRS continues to work through a substantial backlog that includes billions of dollars of improper claims, as identified by an IRS internal review. Many of these fraudulent claims are from businesses that were misled by aggressive marketing campaigns during the pandemic, according to IRS Commissioner Danny Werfel. Because of the volume of claims still to be evaluated, the IRS was only processing claims submitted before Sept. 14, 2023.
Now, however, that moratorium has been lifted. The latest update from the IRS, dated August. 8, 2024, indicates that the agency will begin processing claims filed between September 14, 2023 and January 31, 2024. The agency will focus its attention on the lowest- and highest-risk claims in this next stage.
In addition, 50,000 claims are being moved into processing so that payments can be issued to those taxpayers. If yours isn’t among those 50,000, here are some steps to take while you wait.
Steps you can take while awaiting your Employee Retention Tax Credit
Business owners who have not received their ERC or a letter from the IRS should take the following steps:
- Contact the IRS: Call the IRS Business and Specialty Tax Line at 800-829-4933 for information on your claim. You’ll need to have your business’s EIN and tax return information ready when you call.
- Review your submission: Ensure that the ERC claim was properly submitted with all necessary documentation and correct information.
- Consult a tax professional: Seek advice from a tax professional or accountant to review the claim and ensure it meets all requirements. At Bench (that’s us) our in-house tax advisors provide small businesses with year-round tax advisory services to help answer tax questions and ensure you correctly make the most of your credits and deductions.
- Stay informed: Keep up-to-date with IRS announcements regarding the ERC program, as changes or additional guidance might be issued. The experts at Bench put together a biweekly newsletter where you can stay informed on small business matters and receive advice on managing small business finances. Subscribe today.
- Document all communications: Maintain records of all communications with the IRS and any correspondence related to the ERC claim.
What to do if your claim is denied
If your claim is denied, but you believe your business was eligible, you will receive a disallowance letter from the IRS. This will inform you that the agency has disallowed your claim, and give you information on what to do if you disagree with this decision. General information on how to appeal a claim can also be found on the IRS’ Independent Office of Appeals website.
Common reasons for disallowed claims:
- Entity not in existence: Only entities established before December 31, 2021, are eligible for the ERC.
- No paid employees: The ERC is for entities that paid qualified wages during the eligibility periods.
What to do if you submitted an erroneous claim
Because of the confusion around this complex credit, and the multitude of scammers who encouraged businesses to apply, the IRS is offering two options for business owners who submitted a claim, but realized they were not eligible:
- Special Withdrawal Program: Allows taxpayers with pending claims to withdraw their applications if they believe their claims are inaccurate, avoiding future IRS actions.
- Voluntary Disclosure Program (ERC-VDP): Business owners who received payments they were ineligible for may apply for the second round of the ERC-VDP through Nov. 22, 2024. This program will enable those who received questionable payments to voluntarily disclose and avoid penalties.
If your business incorrectly claimed ERC credits, the IRS also encourages amending your tax return with the correct figures.
How to protect yourself from ERC scams
The IRS is warning taxpayers of ongoing scams in which ineligible businesses are encouraged to apply for the ERC credit. These scams not only charge fees to apply for the credit but also collect sensitive business information, exposing businesses to identity theft. The IRS Criminal Investigation Division is cracking down on ERC scammers, but businesses should take precautions to avoid falling victim:
- Do due diligence: Research to ensure your eligibility for tax credits and consult official IRS resources.
- Beware of aggressive marketing: Scammers use aggressive tactics and pressure businesses to act quickly.
- Protect personal information: Do not share your SSN, business EIN, or other identifiable information with unknown or untrustworthy entities.
Employers should report fraud and phishing attempts to the IRS and the Treasury Inspector General for Tax Administration. You can also regularly check the IRS Dirty Dozen list, which highlights common tax scams during the filing season, to keep your business protected.
As the IRS continues its efforts to combat fraudulent ERC claims, businesses must ensure compliance with guidelines and consult reputable tax professionals. By taking a cautious approach and staying informed, businesses can navigate the complexities of the ERC and avoid potential penalties and repayment obligations.
For more information, visit the IRS website for ERC FAQs and the ERC Eligibility Checklist.
