IRS halts Employee Retention Credit processing – What SMBs need to know

The Internal Revenue Service (IRS) is taking aggressive action against erroneous Employee Retention Tax Credit applications. The agency claimed it won’t process any new claims from businesses through at least the end of the year.

Congress established the Employee Retention Credit (ERC) in March 2020 as part of the $2.2 trillion coronavirus stimulus package known as the Cares Act—the credit aimed to encourage firms to retain workers in light of the pandemic’s rising unemployment rates. After more than three years, the IRS has received 3.6 million ERC claims, many of which, according to the agency, were initiated by bad actors. 

However, IRS Commissioner Danny Werfel stated, “The IRS is increasingly concerned about honorable small-business owners being duped by bad actors, and we could no longer tolerate growing evidence of questionable claims pouring in. As more time passes since the pandemic, the more we witness abuse of this significant program’s good intentions.”

The National Federation of Independent Business (NFIB), the nation’s leading small business advocacy organization, released the following statement in response to the Internal Revenue Service’s announcement:

“While misleading marketing for the Employee Retention Tax Credit remains a problem, the IRS should not penalize the hundreds of thousands of small businesses that have followed the eligibility rules, correctly filed claims, and need help now,” said Kevin Kuhlman, NFIB Vice President of Federal Government Relations. He continued, “By further delaying the processing of existing claims, the IRS is making it more difficult for small businesses to operate, keep employees, and create jobs.”

On September 14, the IRS revealed that it’s currently auditing thousands of ERC claims and pursuing hundreds of criminal cases involving unlawful claims.

Ultimately, hold onto your tax receipts because you’ll need them if you’re awaiting a refund or if your taxes are under audit.