The bottom line, it’s probably going to be a while before you see money.
The Employee Retention Credit offered is a tax credit provided to employers who had employees and were impacted by COVID-19. Many employers are eligible for credit in one or several quarters. This program hugely benefits several employers, especially small ones who suffered losses from the COVID-19 pandemic.
However, the IRS was behind in processing before firms began aggressively marketing offerings that they could help employers get this credit. Let’s face facts – although COVID-19 shutdowns affected many businesses, they didn’t reduce revenue for every business. Point in case – many companies that supported the need for people to shelter in place grew in 2020 and 2021.
As a result of the increased marketing to apply for the credits, many companies are receiving funds for while they did not qualify – and being required to return those funds. For example, if an employer received a PPP loan during a specific quarter, they would not be eligible to use those wages for the ERTC for the same quarter. The IRS offers detailed information on its website about this credit.
To complicate matters, when the employer is part of a PEO, it must submit the ERTC through the PEO’s consolidated tax filing. As a result of some mechanical issues at the IRS, PEOs are required to submit amended 941s (941x) on paper by mail. Yes, in 2023, the paper forms are being mailed to a post office box in Kansas City, MO, to be reviewed and processed accordingly. Additionally, the IRS has had to staff up to address the growing demand for administrative processing. As a result, many employees at the IRS are new hires. Once the amended return is processed, the employer’s credit is given to the primary tax account of the PEO.
According to COO and CFO Jorge Solis of Idilus, “We have to track the process of all the 941x amendments manually, the date they were sent, received by the IRS, and when they have been forwarded for processing.” Solis estimates it will take 2-3 weeks to receive notice that the IRS has received an amended return. It has been, on average, taking 8 to 9 months to receive the credits from the IRS.
Effective Sept. 14, 2023, the IRS placed a hold on issuing ERT credits until 2024 due to credit abuse fraud from the pandemic relief program. For the IRS to strengthen claims processing, additional documentation may be required.
The IRS noted that hundreds of criminal fraud cases are being investigated, and thousands of claims are being audited.
On a more positive note, the IRS appears committed to correcting the situations of fraud and abuse that have plagued both this program and the PPP loan program to make sure the businesses legitimately in need of these funds receive them.