The Employee Retention Credit (ERC) was a government-sponsored program to keep workers employed during the Covid-19 pandemic. It provided qualifying employers with a refundable credit against certain employment taxes equal to 70% (up from 50% prior to 2021) of the qualified wages that an eligible employer paid to employees after March 12, 2020, and before July 1, 2021.
If you recall a few months back, there were a flood of TV commercials claiming businesses could get a tax refund of thousands of dollars by filing for the ERC. Those commercials of course got business owners’ attention. What those ads failed to mention is that businesses must meet stringent qualifications to be eligible for the credit.
The IRS has issued several warnings urging people to carefully review the Employee Retention Credit (ERC) guidelines before trying to claim the credit as promoters continue pushing ineligible people to file.
As part of a larger effort to protect small businesses and organizations from improper refund claims, the IRS in December of 2023 introduced a New Voluntary Disclosure Program that allows employers who received questionable Employee Retention Credits (ERC) to pay them back at a discounted rate.
This new program is part of a larger effort by the IRS to stop aggressive marketing around the ERC that misled some employers into filing claims.
Interested employers must apply to the ERC Voluntary Disclosure Program. Those that the IRS accepts into the program will benefit from the following:
- They need only repay 80% of the credit they received. Why isn’t the IRS requiring payment of 100% of the ERC the employer received? The IRS selected an 80% repayment because many of the ERC promoters charged a percentage fee, typically 20%, that they collected at the time of payment or in advance of the payment, and the recipients never received the full amount.
- If the IRS paid interest on the employer’s ERC refund claim, the employer would not need to repay that interest.
- Income tax returns do not need to be amended to reduce wage expense.
- The 20% reduction is not taxable as income.
- Penalties and interest will not be levied on the amount of the ERC amount claimed.
- ERC claims resolved under this program will not be subject to IRS examination.
However, applications must be submitted by March 22, 2024, and time is running out. To apply an employer must first file Form 15434, Application for Employee Retention Credit Voluntary Disclosure Program, available on IRS.gov. This form must be submitted using the IRS Document Upload Tool. Employers will be expected to repay their full ERC, minus the 20% reduction allowed through the Voluntary Disclosure Program.
Employers who are unable to repay the required 80% of the credit may be considered for an installment agreement on a case-by-case basis, pending submission and review of a Form 433-B, Collection Information Statement for Businesses, available on IRS.gov, and all required supporting documentation.
The IRS also is offering an ERC withdrawal program. Employers that have submitted an ERC claim, but have not yet received a refund, may still have an opportunity to withdraw their claim before the claim is processed. Employers can use this ERC claim withdrawal process if ALL the following apply:
- The claim was made on an adjusted employment return (Forms 941-X, 943-X, 944-X, CT-1X).
- The adjusted return was filed only to claim the ERC and made no other adjustments.
- The employer wants to withdraw the entire amount of their ERC claim.
- The IRS has not paid their claim, or the IRS has paid the claim, but the employer has not cashed or deposited the refund check.
To take advantage of this new claim withdrawal procedure, taxpayers should carefully follow the special instructions at IRS.gov/withdrawmyERC.
If you have submitted an ERC claim and are concerned about its validity, or fallen victim to an ERC promoter or marketer, and would like this office to review the claim, or if you need assistance in taking advantage of the two IRS programs to get things right, please contact this office.
