The IRS announced on September 14 that it will be temporarily halting processing on claims for the employee retention tax credit, also known as the ERC. This is due to heightened concerns over abuse and what it refers to as “questionable claims” which may have resulted in many small businesses incorrectly claiming the tax credit. Companies that incorrectly claimed the ERC may be forced to pay back the money from the credit, so the IRS is warning businesses to make sure they actually qualify before trying to claim it.
What is the ERC?
The employee retention tax credit, or ERC, is a refundable tax credit that was passed during the height of the COVID-19 pandemic. It is a tax credit that allows certain businesses that were impacted by the pandemic to claim up to 50% of their employees’ wages against certain employment taxes. In order to qualify for the ERC, a business must meet certain specific criteria, which many who claimed the credit didi not.
Why Was the ERC Implemented?
The ERC was meant to encourage small businesses to keep their employees on staff through the pandemic by providing a tax credit to certain qualifying businesses, giving them potentially thousands of dollars in credits if they retained their employees through the pandemic. This would, in theory, soften the economic blow caused by extensive layoffs and furloughs that occurred as a result of COVID-19. It would also help to keep businesses from closing down when they otherwise were not able to operate normally.
Why Has Processing for the ERC Been Halted?
The IRS announced it would be halting ERC processing temporarily due to a shocking trend of ERC-related scams, which targeted small businesses and convinced them to apply for the credit when they were not otherwise eligible. As a result, many businesses improperly claimed the ERC, getting them in trouble with the IRS while saving them nothing in the end. For the time being, this means the IRS will not be processing ERC claims, and anyone who wants to benefit from the credit may not be able to do so.
How Could This Impact You?
If you are a small business who may qualify for the ERC, this is likely disheartening news, as it means you may not be able to benefit from it for the time being. However, it is likely that processing will resume soon, and business owners should not panic. Instead, it is important to remember why you should always get guidance from experienced tax professionals who will work to place your interests first, rather than doing what is best for their own bottom line.