Has Anyone Received ERC Refunds in 2023?

The Employee Retention Credit (ERC) has been a valuable lifeline for many businesses during the pandemic, but the rules and eligibility around the tax credit have been complex and evolving. With the ERC program now expired, many businesses are wondering if they can still claim the credit in 2023 for prior eligible periods. Here’s what we know so far.

What is the Employee Retention Credit?

The ERC was introduced through the CARES Act in 2020, expanded through the Consolidated Appropriations Act of 2021, and further through the American Rescue Plan Act of 2021. The ERC Tax Credit is a refundable payroll tax credit for employee salaries, wages, and healthcare insurance, offered as a relief measure to encourage businesses to keep employees on their payroll.

The good news is, it’s not too late to retroactively file your ERC claim in 2023! The credit was available for qualified wages paid between March 13, 2020 and September 30, 2021. Eligible employers can still amend their payroll tax returns to claim the credit for those periods.

How Does the ERC Work?

The ERC is a tax credit that transforms into a tax-free refund once any payroll taxes owed to the IRS (employer’s share of social security taxes (FICA) March 31, 2020, to March 31, 2021/Medicare tax after March 31, 2021, to October of 2021) have been paid in full. This refund is tax free (see below rule for additional details) and can be used by the employer in any which way they want.

How to Claim the ERC

Companies are required to file a 941-X for the specific qualified quarter in order to claim the ERC. They must fill out specific lines in the 941-X that tell the IRS they are claiming the credit. An amended state unemployment tax form may also need to be filed.

ERC Eligibility Rules

The eligibility rules for the ERC have been complex with several changes since the program was introduced. In general, to qualify for the ERC, employers must have experienced one of the following circumstances:

• Full or partial suspension of operations due to a COVID-19 government order
• Significant decline in gross receipts compared to the same quarter in 2019

There were also rules around the maximum amount of qualified wages per employee that could be claimed each quarter. The credit originally applied to qualified wages up to $10,000 per employee for 2020. This was increased to $10,000 per quarter in 2021. There were also aggregation rules that applied for companies with more than 100 employees.

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Claiming the ERC in 2023

The ERC program expired on October 1, 2021, so no new credits can be claimed for wages paid after that date. However, eligible employers can still retroactively claim the ERC for prior periods in 2023 by amending their payroll tax returns.

For example, if a business qualified for the ERC in Q2 and Q3 of 2020 based on a significant decline in gross receipts, they could file 941-X forms in 2023 to claim the credit for those quarters. The deadline for amending those returns would be 3 years from their original due dates.

So in summary – yes, the door is still open in 2023 to claim ERC refunds for eligible wages paid in 2020 and 2021!

Claiming the Credit with an ERC Consultant

Many businesses have turned to ERC consulting firms such as Innovation Refunds, Bottom Line Concepts and others to help them identify if they qualify for the credit and file amended returns. These firms take a percentage of the refund as their fee. This can be a good option for companies who don’t have the bandwidth to determine their eligibility and manage the complex filing process.

However, business owners should be aware that some ERC promoters have been overly aggressive, claiming credits that exceed what employers are entitled to. The IRS has cracked down on inflated ERC claims, so it’s important to work with a reputable consultant.

IRS Scrutiny of ERC Claims

The IRS has been closely scrutinizing ERC claims, particularly from Q3 and Q4 of 2020 when eligibility expanded significantly. The agency has identified billions in potentially fraudulent credits, often stemming from consultant-promoted schemes. Some red flags include:

• Claiming the credit despite no decline in gross receipts or COVID-19 impact
• Claiming the maximum credit for employees who continued working full time
• Claiming credits for fake employees or employees whose wages were not actually paid

The IRS has sent thousands of questionnaires to employers questioning suspect ERC claims. In some cases, promoters claimed credits exceeding payroll tax liabilities, resulting in inflated tax refunds. The IRS has disallowed such credits and assessed penalties for excessive refund claims.

Best Practices for Claiming the Credit

If amending returns to claim the ERC in 2023, it’s wise to take steps to avoid IRS scrutiny:

• Work with a reputable CPA or tax attorney rather than unknown consultants
• Be conservative in the amount of credits claimed
• Make sure your decline in gross receipts or COVID-19 impact is well documented
• Only claim credits for employees who truly provided services

Mistakes can be costly – the IRS can assess accuracy penalties up to 20% of any underpayment plus interest. Structuring claims to maximize credits could be viewed as outright fraud in some cases.

What’s Next for the ERC?

While new ERC claims can no longer be filed for periods after September 2021, Congress could potentially revive the credit retroactively in future legislation. There have been calls by some legislators to enact a “Taxpayer Clarity and Relief Act” that would reopen and extend the ERC for 2022.

However, the IRS has pushed back strongly against reopening the credit, citing billions in potentially fraudulent claims already filed for 2020 and 2021. In September 2022, the IRS announced it will not be accepting new ERC claims until at least 2024 to allow time to process the backlog of amended returns.

So for now, the window remains open to retroactively claim credits for prior periods, but appears closed for any potential extension to 2022 or beyond.

The Bottom Line

The ERC provided a valuable lifeline to struggling businesses during COVID-19 shutdowns and economic turmoil. While complex, the credit is still available to eligible employers who amend prior payroll tax returns in 2023.

Companies interested in pursuing the ERC should consult legitimate tax advisors, carefully review eligibility, and be conservative in the amounts claimed. With scrutiny high, thoughtful planning can help maximize benefits from the credit while minimizing audit risk.