The Employee Retention Credit (ERC), also known as the Employee Retention Tax Credit (ERTC), will unveil some major changes at the start of 2024. Starting in September of 2023, the IRS Commissioner placed a moratorium on new ERC applications through the end of the year, giving the IRS time to update its guidelines and develop a new processing standard aimed at preventing fraudulent claims from being approved.
Small businesses are increasingly at risk of being targeted by aggressive promoters looking to use them to make fast money and let them deal with the fallout, should their false claim get discovered. The best thing any business can do to protect themselves is to work with a reputable tax organization that can audit their company and help them apply for the credit properly.
Changes to the ERC Process
The most significant adjustment to the ERC application is that processing will increase from an average of 90 days to 180 days. This longer period gives the IRS time to complete a detailed compliance review and look into any potential fraud cases. They will likely pay especially close attention to applicants who:
- File for credits in mass quantities (600,000 units or more)
- Have little or no other history with the IRS
- File only basic information without extra documentation
What This Means for Your Business
These changes will have immediate and longstanding effects on both new applicants and those currently using ERC:
For New Applicants
While the IRS is still accepting submissions, it will not process new applications until January 2024. Despite this delay, now is still the perfect time to apply for the ERC. By applying now, your application will be in front of the forms of those who wait until the start of the year to send theirs in.
Also, the new application process will take longer and require more preparation on your part, so preparing your submission now gives you more time to review it with a professional and prevent denial or fraud charges based on improper filing.
For Current Users
The IRS is continuing its payments to those already approved for the ERC, though they will come through at slower rates than they have in the past. They are also continuing to approve the backlog of applications that have already been submitted at the time of the moratorium taking effect.
ERC Audits for Credit Receivers
Changes to the ERC process mean the IRS is looking more closely at those who have previously received credits. Some businesses applied for credits at the encouragement of scammers and promoters under fraudulent circumstances. Even those with a legal right to the credit could be required to pay back the money they received if the application was completed incorrectly.
The IRS could review past submissions with an audit and request payment back. Audits can be triggered by various circumstances, including:
- Incorrect or incomplete information: If tax forms like Form 941 or Form 8974 have missing or false information, you may receive an audit.
- Excessive claims: The amount claimed isn’t supported by eligible wages, number of employees and other CARES Act criteria.
- Prior noncompliance: A history of avoiding tax laws and regulations could increase the likelihood of an audit.
- Inconsistencies: If the claimed amount doesn’t match other financial-related information like payroll records or other tax filings, the chances of an audit increase.
A professional audit can uncover any issues with your ERC application. After an audit, our team can refile so you can keep the credit you received. Proactively seeking an audit will provide better results than waiting for the IRS to audit past applications and find a problem. If they require repayment, they will also require interest.
Why You Need a Professional Risk Assessment
With this new scrutiny of every ERC application submission, it’s more important than ever that you have a professional assist you in applying for funding. One missed or incorrectly answered question may extend the already long waiting period and require you to restart the entire process. At Polston Tax, our professionals have been successfully submitting ERC applications from the start. Our decades of experience have given us in-depth knowledge in navigating all types of tax laws.
The ERC was made to help small and midsized businesses (SMBs) like yours. As an SMB ourselves, we know the unique challenges you face and how essential it is for you to have the right funding. Our team is ready to put our abundant knowledge to the test and effortlessly guide you through ERC audits and applications.
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