Paige Minturn
In 2024, small businesses are facing a pressing issue: The time it takes for the IRS to process their Employee Retention Credit (ERC) claims. The ERC provided essential support to employers during the COVID-19 pandemic. However, as the year progresses, ongoing challenges at the IRS are causing delays in the processing of ERC claims.
On September 14, 2023, the IRS implemented a freeze on new ERC claims, initially scheduled to last until at least December 31, 2023. As of May 2024, this moratorium is still in effect with no clear end date, resulting in substantial delays for both new and pending refunds.
The main reason for the moratorium is the IRS's intensified efforts to prevent fraud. Before this pause, the IRS estimated ERC refunds could be processed in as little as three months. However, with the introduction of a more rigorous review process to identify and address potentially fraudulent claims, the estimated processing time has increased to at least nine months.
On January 31, 2024, the House of Representatives passed the Tax Relief for American Families and Workers Act of 2024, which is still awaiting a Senate vote. If enacted, this legislation will retroactively end the ERC program as of January 31, 2024, extend the IRS's assessment period to six years, and increase penalties for ERC-related abuse.
The combination of a growing backlog, extended review periods, ongoing fraud investigations, and new legislation has created unprecedented wait times for ERC refunds in 2024. Employers should prepare for varying processing times and adjust their financial planning accordingly.
The size of the claim significantly affects the processing time. Additionally, claims filed earlier are likely to have shorter wait times, around nine to 10 months, as they are already in the IRS queue. However, this is still a considerable increase from the pre-moratorium estimate of three months. More recent filings could face even longer wait times, possibly up to 12 to 14 months, given the current processing rate. For instance, between mid-August and mid-October 2023, ERC claim filings were about 45,000 per week, while the IRS processed only about 150 claims per week. If this trend continues, the backlog will increase, causing further delays.
Given the extended IRS processing times, an ERC refund is not a reliable source of capital for 2024. Employers must plan for long wait times and potential delays. The moratorium is still in place as the IRS refines its procedures and guidelines. When it is lifted, the backlog will still be significant, and processing times will remain uncertain.
Consider the impact of delayed refunds on your 2024 budget and cash flow projections. It may be necessary to reallocate resources or adjust spending. This could involve cutting nonessential expenses, renegotiating contracts, or finding ways to optimize cash flow. If refund delays create a cash flow issue, ERC advanced funding could be a solution to bridge the gap. Advanced funding allows employers to receive their expected ERC refund upfront, alleviating financial strain caused by IRS delays. This option can provide peace of mind and help businesses maintain operations without major disruptions.
As the IRS continues its focus on fraud prevention, stay informed and be ready to provide documentation. The IRS may request additional information to verify eligibility and claim amounts. Delays could worsen if you do not respond promptly. A proactive approach can help you adapt and avoid complications.
For small businesses grappling with delayed Employee Retention Credit (ERC) claims, the Taxpayer Advocate Service (TAS) could be a valuable resource. The TAS is an independent organization within the IRS that helps taxpayers resolve problems with the IRS and recommends changes to prevent these issues. It can expedite the processing of ERC claims by assisting businesses in navigating the complex procedures and ensuring that their cases are given attention.
One of the primary functions of TAS is to help taxpayers who are experiencing financial hardship due to IRS delays. If your ERC claim is significantly delayed and impacting your business operations, TAS can step in to facilitate quicker resolution. However, using TAS services often subjects your claim to additional scrutiny. Thus, it’s crucial that your claim is straightforward and well-documented.
When filing an ERC claim, it's advisable to ensure that the qualification criteria based on gross receipts are clear and easily substantiated. This reduces the likelihood of complications and potential delays. By working with TAS, you can get your claim reviewed more quickly, but be prepared to provide comprehensive documentation and to respond promptly to any requests for additional information. If you are interested in exploring Taxpayer Advocate Services for your ERC claim, our team can assist you through this process to ensure your case is handled properly.
