Most employers in the United States completely shut down or suspended operations during the COVID-19 pandemic. To help such businesses, the federal government implemented various policies, including the Employee Retention Tax Credit (ERTC) or Employee Retention Credit (ERC) program.
However, it can take the IRS months to process claims because of the number of applications the agency receives, along with other associated factors.
This guide addresses what the ERC is, who qualifies, how to track your ERC status, ERC refund processing times, the reasons for delays and the deadlines for applying for your ERC refund.
What Is the ERC?
ERC is a refundable tax credit for qualified businesses and non-governmental employers who had employees during the COVID-19 pandemic and were affected by the situation. In other words, the ERC program allows you to receive a refundable tax credit for certain payroll expenses during the pandemic.
The pandemic caused many businesses — large and small — to lose significant amounts of money. As a result, many employees lost their jobs, while some companies shut down or suspended operations. The U.S. government created several initiatives to cushion people affected by the novel situation and to help struggling businesses survive. One such initiative, the ERC, intended to encourage companies to keep workers on the payroll in 2020 and 2021, even if the employees were not working.
The federal government initially created the ERC program to assist businesses from mid-March to December 2020. However, the government extended the duration for companies that meet the eligibility requirements considering the economic and social impacts.
Although the tax credit has ended, qualified businesses and tax-exempt organizations can still file for the ERC and receive reimbursement for a portion of the payroll within the specified period. The Coronavirus Aid, Relief and Economic Security (CARES) Act introduced the ERC program.
Who Can Apply for the ERC Refund?
Your business may qualify for the ERC if you meet the following conditions:
- You covered the wages of full-time and part-time W-2 workers during the pandemic.
- Your revenue dipped significantly compared to the same quarter in 2019.
- You had to shut down your business or suspend operations because of the pandemic or government orders.
Generally, wages paid during normal operations, even those incurred during the eligibility period, are not covered. Additionally, the size of your business and the number of employees may influence the amount you receive.
Can Recipients Under the Paycheck Protection Program Apply?
The Consolidated Appropriations Act of 2021 changed the rules, allowing businesses that received funding under the Paycheck Protection Program (PPP) to apply for ERC. However, the wages you claim under the ERC must differ from those under the PPP to avoid “double-dipping.”
Here is an example. A business used the PPP funds to cover wages of $40,000. When applying for the ERC, the business excludes the amount already claimed under the PPP.
How Do You Apply for the ERC Refund?
To apply for the ERC refund, you must complete and file Form 941-X, which is used to amend Form 941. Form 941-X is generally used to correct errors, but the new development allows eligible businesses to use it to apply for the ERC retroactively. The refundable credit will be taken out of your share of Social Security tax.
You may file for an ERC refund yourself or leverage the expertise of a tax professional. Whichever option you choose, ensure there are no errors, omissions or miscalculations. Submitting inaccurate or incomplete documents can lead to delays.
How Can You Track Your ERC Refund?
You can track your ERC refund by contacting the IRS directly or using their online portal.
If you mailed your application, check if the postal service has delivered it before contacting the IRS. When you call the IRS, ensure you have the following readily available:
- Employer identification number (EIN)
- Social Security number
- Tax return information
The IRS uses this information to verify your ERC status. After contacting the IRS, you should receive a notification through the accepted communication channel.
Calling the IRS can be stressful with long hold times, but you should persist. If your business is experiencing financial hardship due to delays, you may contact the Office of the Taxpayer Advocate or Taxpayer Advocate Service (TAS) for assistance. The TAS helps taxpayers resolve challenges with the IRS.
You may also use the IRS refund status portal to get information about your ERC. Visit the webpage and provide the requested information, including the tax year, filing status and refund amount on your tax return.
How Long Does It Take to Receive ERC Refund in 2023?
The ERC time frame varies depending on many factors, including the number of applications the IRS receives within a period, the refund amount and the type of business. The average time is about 180 days. Companies may now have to wait longer — possibly months — for the refund with the increase in applications and backlogs.
What Causes the ERC Refund Delays?
Here are four reasons for the ERC refund delays:
1. High Number of Applications
The COVID-19 pandemic affected many businesses, most of which are likely to take advantage of the federal initiative. According to the IRS, as of August 23, 2023, there were approximately 556,000 unprocessed Forms 941-X, some of which can only be processed once the related 941s are processed. The IRS has a limited staff to process these applications, and the wait time will likely increase further as the number of applicants grows.
2. Hand Processing Returns
IRS staff must hand-process the claims made on the amended payroll returns, which can be slower than an electronic approach. Coupled with staffing shortages, it becomes more challenging for the agency to deal with the continuous rise in unprocessed claims. While this can be frustrating, if you apply for an ERC, you should continuously follow up on your refund’s status until the credit is applied.
3. Fraudulent Claims
The third reason for the delay in ERC processing time is fraudulent claims. Besides processing large volumes of applications, the IRS staff must double-check each claim before issuing them.
To help combat these fraudulent claims, the IRS issued a press release warning employers to beware of third parties promoting improper ERC claims. The IRS also advised employers to be cautious about schemes that promise abnormal savings. Employers who fail to claim ERC refunds properly may be required to repay the amount with interest and penalties.
The IRS recently issued a directive temporarily pausing the processing of ERC claims due to fraud concerns. Additionally, the directive instructs IRS agents to analyze currently filed ERC claims more rigorously, further increasing processing times. We discuss the update in detail below.
4. Errors in Filing
Making errors on your Form 941-X, like miscalculations and missing information, can add to the already long processing time. Before submitting your returns, double-check the details to see if everything is correct. You should seek professional advice or assistance if you have any doubts. The process can be complex and tedious, so asking for help when you are unsure is the best way to avoid costly mistakes and penalties.
When Did the ERC End?
For most qualified taxpayers, the ERC end date was September 30, 2021. Generally, employers may only claim wages paid before that date. However, recovery startup businesses can still claim wages paid after June 30, 2021, but before January 1, 2022. Qualified employers may claim the ERC retroactively by filing an applicable adjusted employment tax return before the deadlines.
What Are the Deadlines to Apply?
The ERC can apply to part of the 2020 and 2021 tax years, each with a specific deadline.
For Q2-Q4 of the 2020 tax year, the deadline to apply for the ERC is April 15, 2024. The first quarter is omitted because the COVID-19 pandemic mandate began after that period.
For Q1-Q3 of the 2021 tax year, the deadline to apply for the ERC is April 15, 2025.
Employers may have sufficient time to gather the relevant documentation and apply. However, it’s vital to start the process as soon as possible, considering the long waiting periods.
Can You Apply to Have the ERC Applied Retroactively?
Yes. Although the ERC officially ended in 2021, businesses can file for a retroactive ERC refund by filing Form 941-X. You can also use the form to adjust your employment taxes filed within three years of the original return or two years from when the employer paid the tax. Eligible employers who did not initially claim their ERC may do so through 2024, depending on when they initially filed or paid the business tax.
It’s important to remember that the retroactive refund applies to the last three quarters of the 2020 tax year and the first three quarters of the 2021 tax year. The fourth quarter of 2021, 2022 and tax years beyond are excluded.
Is the IRS Still Processing New ERC Claims?
The IRS is still accepting new ERC claims. However, according to a bulletin released in September, they are delaying processing any claims filed before the moratorium due to concerns about improper and fraudulent ERC claims. The moratorium allows the IRS to add more safeguards to prevent abuses in the future and protect businesses from predatory tactics.
When processing starts again in 2024, claims will be subjected to stricter reviews and audits, meaning slower processing times. The IRS advises taxpayers and small business owners to seek out trusted tax professionals who have experience with the often complex ERC rules, considering the seriousness of the matter. Professionals can provide insight on the appropriate steps to take and audit existing ERC filings. It’s crucial now more than ever to choose your ERC company carefully to avoid sanctions or an improper denial. Eligible businesses yet to file their claims are advised to seek help from reputable tax companies and submit applications immediately to stay ahead when the processing starts again.
Additionally, the IRS requests that taxpayers who believe they received ERC claims in error return the funds voluntarily. For businesses that already filed claims, reviewing the guidelines before taking further steps is crucial. Businesses that need to return erroneously received funds should consider consulting a reputable tax company to ensure they return the funds properly and avoid further complications.
ERC Frequently Asked Questions
Here are answers to some frequently asked questions:
1. How Can You Reduce the ERC Processing Time?
Although there are many backlogs, the following may help you get your ERC faster:
- Eliminate errors: Sending ERC claims with errors can increase your processing time. Rectifying mistakes takes time and effort, so review your application multiple times before submitting it to the IRS. Typical errors that can cause delay include incorrect recovery rebate credit, unauthorized signatory and incorrect information like wrong business name, Social Security number or EIN.
- Send complete tax returns: Ensure you send all relevant attachments when applying for an ERC refund. For example, if you send Form 941-X without Form 941, your application may be unprocessed. Consult your tax advisor to ascertain all you need to do before submitting your claim.
- Avoid sending suspicious applications: The IRS must review all applications to ensure there are no fraudulent claims before issuing the ERC refund. Sending a suspicious application can create unnecessary delays and frustration. Always ensure the documents you file with the IRS are clean and complete.
- Get a tax professional: Tax professionals generally have the experience to prepare and submit accurate and complete documentation to the IRS. This can help you get your ERC refund faster. Also, partnering with tax professionals can take the load off your shoulders, allowing you to focus on other important business matters.
2. Who Can Sign a Claim for an ERC Refund?
The person who signs the ERC claim depends on the nature of the business. For a sole proprietorship, the business owner can sign the ERC claim. In the case of a corporation, the president, vice president or a duly authorized principal officer can sign the claim. The appropriate person to sign for a partnership may be an authorized partner, a member or an officer with knowledge of the affairs. The fiduciary is the best person to sign the ERC for a trust or estate.
3. Can You File for an ERC Without the Original Employment Tax Return?
You must file the original employment tax return before filing for an ERC. Any delay or errors can increase the processing time, causing you to wait longer than usual. It’s best to gather all relevant documents and review the application several times before sending it to the IRS.
4. Who Is Disqualified From Claiming ERC?
You qualify for ERC if you operate a business or tax-exempt organization with employees. Taxpayers who cannot claim an ERC include:
- Household employers
- Government agencies
- Employers who didn’t pay wages to employees during the specified periods
- Employers who experienced supply chain disruptions instead of total shutdown or partial suspension of operations
5. Which Tax Professional Can Help You Get the ERC?
You can consult many tax professionals to help you file your ERC. To find the right one, you should consider the following:
- Confirm their credentials: The IRS requires those who assist or prepare federal tax returns for compensation to have a preparer tax identification number (PTIN). Some may also need an accounting or law license, depending on the services they offer. Verifying credentials helps you avoid situations where your ERC claims are delayed because your tax preparer lacks the required qualifications. Polston Tax has the credentials to prepare tax returns for companies nationwide.
- Confirm whether they’ll sign: Paid preparers must sign their client’s returns and provide their PTINs. Refrain from signing blank tax returns because a fraudulent preparer can steal your ERC refund.
- Prioritize experience: Select a tax professional with practical experience in the industry. The primary goal is to partner with a person or organization that can simplify your ERC application and handle all related matters. Additionally, check if they have customer relations to provide the needed support while waiting for the IRS to process your claim. Poston Tax has been helping taxpayers since 2001, and our team has over 100 years of combined experience.
- Compare fees: Contact different tax professionals and learn how much each will charge. Even so, remember that the cheapest is not always the best. You should find a partner that delivers results and adds value to your business.
Contact Polston Tax for Your ERC Refund Now!
While the standard ERC claims processing timeline has increased from 90 to 180 days, submitting accurate and complete tax returns is essential to avoid unnecessary delays. Tax professionals can help you prepare, file and track your ERC refund so you can focus on other things. Also, if you have been denied an ERC refund, it is best to consult a professional immediately.
Polston Tax Resolution and Accounting provides tax services of all kinds and has decades of experience helping businesses handle their tax issues. Our dedicated CPAs and tax attorneys are willing to research and prepare compelling arguments to help you receive your claim. We also prepare for an audit in advance, structuring our basis for filing your claim in a way that also satisfies the requirements for an audit argument. If you get audited, that audit argument is included in our service.
At Polston Tax, we support clients across the country and manage all communications with the IRS. If you need any assistance with your ERC refund, contact us now!
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