%20-%20WHITE.png)
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% before 2021) of the qualified wages an eligible employer paid employees after March 12, 2020, and before July 1, 2021.
If you recall, a few months back, a flood of TV commercials claimed businesses could get a tax refund of thousands of dollars by filing for the ERC. Those commercials, of course, got business owners’ attention. Those ads failed to mention 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 more significant effort to protect small businesses and organizations from improper refund claims, the IRS, in December of 2023, they 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 to repay only 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 ERC promoters charged a percentage fee, typically 20%, that they collected at the time of payment or in advance, and the recipients never received the total 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 expenses.
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 cannot 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 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 who have submitted an ERC claim but have yet to receive a refund may still be able to withdraw their claim before it 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 no other adjustments were made.
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 hasn’t cashed or deposited the refund check.
Taxpayers should carefully follow the special instructions at IRS.gov/withdrawmyERC to take advantage of this new claim withdrawal procedure.
If you have submitted an ERC claim and are concerned about its validity, or you have 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 get in touch with this office.