Employee Retention Credit
Member Alert: Update on Employee Retention Credit
While Congress has not passed any business related tax bills in 2024, there have been recent developments that the small business owner will find interesting and may have a significant impact. One of these is the employee retention credit. After a halt to processing these credit claims, the IRS has issued several summer updates on the progress of this program.
Where’s my Employee Retention Credit (ERC)?
As you know, in an attempt to counter the high volume of erroneous ERC claims and improper payments, last fall the IRS issued a halt on processing claims filed after September 14, 2023. It appears the process is now beginning to move forward.
In August, the IRS announced it was taking additional steps to move forward and continue with ERC processing, including updates on the processing moratorium, compliance actions and upcoming payments. Even better, the Service has identified 50,000 valid ERC claims and is quickly moving them into the pipeline for payment processing in the coming weeks. These payments are part of a low-risk group of claims. In more good news, the IRS indicated that it’s opening up the review process to claims filed between September 14, 2023 and January 31, 2024.
The IRS also announced it recently sent out 28,000 disallowance letters to businesses whose pending claims showed a high risk of being incorrect. The IRS estimates that these disallowances will prevent up to $5 billion in improper payments.
Source: (IR-2024-203, Aug. 8, 2024.)
Are there any signs that a claim may be incorrect?
The IRS has been compiling a list of warning signs common to incorrect ERC claims. The following is a list of a few of the IRS-published warning signs:
Using wages already used for Paycheck Protection Program (PPP) loan forgiveness.
Using wages paid to related individuals (these wages are not eligible).
Unable to support how a full or partial government shutdown suspended business activity.
Essential businesses that could fully operate but didn’t have a decline in gross receipts.
Source: (IR-2024-198, July 26, 2024.)
Fixing Incorrect Claims: The IRS recently reopened the “Voluntary Disclosure Program,” which is designed to help businesses who feel they may have received improper or incorrect employee retention credit payments related to the 2021 tax period(s). This program is open through November 22, 2024 and allows businesses a chance to correct improper payments at a 15% discount and avoid future audits, penalties and interest. NOTE: according to the IRS, this program is not available once an IRS reversal letter is received.
What if my claim was improperly denied? If you receive a letter from IRS denying or reducing a claim, you may have 30-days to file an appeal if you meet all the criteria.
