Blog
IRS Won’t Process New Employee Retention Credit (ERC) Claims
Contents
The IRS Halts Processing of New Employee Retention Credit Claims
The Internal Revenue Service (IRS) recently announced that they will stop processing any new claims for the Employee Retention Credit (ERC) until at least 2024. This pause on new ERC claims began on September 14, 2022.
What is the Employee Retention Credit?
The ERC was a tax credit created in 2020 under the Coronavirus Aid, Relief, and Economic Security (CARES) Act to help businesses retain employees during the COVID-19 pandemic. Eligible employers could claim a tax credit of up to $5,000 per employee based on qualified wages paid. The credit was originally set to expire at the end of 2020 but was extended multiple times, finally expiring in October 2021. While the ERC provided much-needed relief for many businesses impacted by the pandemic, the IRS has seen a major uptick in questionable and potentially fraudulent claims in 2022 and 2023.
Why the IRS Halted New ERC Claims
After consulting with stakeholders like tax professionals and payroll providers, the agency decided to temporarily stop processing new claims so they can address some issues that have arisen:
- Surge in Suspicious Claims – The IRS has seen a significant increase in dubious ERC claims this year, many of which appear to be attempts to inappropriately obtain the credit.
- Concerns from Tax Pros – Many tax professionals expressed worries to the IRS about the validity of recent ERC claims.
- Protecting Taxpayers – By stopping new claims, the IRS aims to protect taxpayers from potential ERC-related scams and fraud.
- Time to Review – This pause will give the IRS time to review the situation and determine next steps for properly administering this credit.
IRS Commissioner Chuck Rettig stated that the agency has seen a rapid rise in amended payroll tax filings this year from businesses claiming the ERC for the first time. Many of these filings were suspicious or clearly invalid.
What the Moratorium Means
This new policy from the IRS applies to any original or amended ERC claims filed on or after September 14, 2022. Here are some key implications:
- No New Claims Processed – Any new or amended ERC claims will not be processed by the IRS until at least 2024.
- Existing Claims Still Processed – ERC claims filed before September 14, 2022 will continue to be processed and paid out if valid.
- Option to Withdraw Claims – Taxpayers who have filed a claim but not yet received the credit can voluntarily withdraw their ERC claim.
- No Timeline Yet – The IRS has not provided a specific timeline for when they will resume processing new claims.
- Potential Additional Guidance – The IRS may issue further guidance related to the ERC if they determine more changes are needed.
Essentially, this moratorium hits the pause button on new ERC claims. All pending and newly filed claims will sit at the IRS until they decide how to handle this issue and reopen processing. Taxpayers are also given the option to withdraw ERC claims if they choose.
What to Do If You Already Filed an ERC Claim
If you already filed an amended return to claim the ERC but have not yet received the credit from the IRS, you have a few options:
- Wait for Processing – You can wait for the IRS to eventually process your claim, which may not happen until 2024 or later.
- Withdraw Your Claim – Alternatively, you can proactively withdraw your ERC claim by contacting the IRS.
- Consult a Tax Professional – Discuss your specific situation with a tax professional to determine your best course of action.
Withdrawing your claim means informing the IRS that you no longer want to claim the ERC and giving up your right to the credit. This may be the simplest option until the IRS provides more clarity.
Maintaining Documentation
Since the IRS will be heavily scrutinizing ERC claims whenever they resume processing, it’s essential for taxpayers to maintain good records. Here are some key documents you should retain related to your ERC claim:
- Payroll Records
- Proof of Business Operations
- Qualified Wage Documentation
- Tax Filings and Returns
Thorough records will help support your ERC claim and improve your chances of receiving the credit down the road. The IRS will likely be asking for documentation from many taxpayers related to ERC claims.
If Your ERC Claim Was Rejected
Some taxpayers who filed ERC claims on amended returns have already had their claims rejected by the IRS before this new moratorium went into effect. If your ERC claim was previously denied, you may be able to appeal or amend and refile your claim. However, with the IRS currently not processing new ERC claims, your options are limited if your claim was already rejected.Speaking with a knowledgeable tax advisor may be your best option if your ERC claim was previously denied. It’s also crucial to retain all documentation related to a rejected claim in case you need to provide further proof when the IRS resumes processing. Thorough records will be key to successfully claiming this credit down the road.
The Bottom Line
This moratorium indicates the IRS is cracking down on potentially fraudulent ERC claims. If you filed a legitimate claim, maintain good records and be prepared to substantiate your eligibility for the credit. Consulting a tax professional can also help navigate the situation. While processing is halted, taxpayers can either withdraw claims or wait for the IRS to provide further guidance.