Processing Of Employee Retention Credit (ERC) Payments
By IRS Could Take Up to 160 Days
The Employee Retention Credit (ERC), which was authorized by the $2.2 trillion coronavirus package known as the Cares Act, aimed to motivate employers to keep workers on staff during the early days of the pandemic as unemployment rates surged.
While it was billed as a lifeline for some companies, the reality is that businesses are waiting months for the processing of these credits because of the excessive backlogs pummeling the IRS. The IRS has advised that the processing of ERC refunds is taking up to 160 days, unless there are any delays, in which case it could take much longer. No one has been able to clarify what might constitute a delay, or offered any suggestions for steps that taxpayers could take to help expedite the process.
Part of what’s driving the ERC backlog in particular are adjusted or amended payroll tax returns. These returns are where the majority of credits have been claimed, and they must be paper filed. The IRS was already facing limited resources even before the pandemic. When you add to that the fact that several million tax returns were filed on paper and sent to service centers that were severely understaffed because of COVID, it’s easy to understand why the processing has been slow.
Bad actors looking to exploit the ERC may also explain the lag. So-called ERC mills have sprouted up in recent months, or entities that look to greenlight every business that comes in with W-2 wages and provide said business with a calculated credit. They do this even if a business may not qualify for the ERC to begin with because of a fee these so-called mills can pocket. Promotional efforts around claiming the ERC even fell onto the IRS’s “Dirty Dozen” list, which curates prominent tax scams.
Lastly, the recently passed debt ceiling deal, also known as the Fiscal Responsibility Act of 2023, claws back billions of funding from the IRS. While the law won’t impact the ERC directly, it will affect enforcement, which will likely, in part, target the ERC credits. Accordingly, fraud could continue to be an issue.
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