The IRS is cracking down on erroneous or false claims related to the Employee Retention Credit (ERC) and has introduced a supplemental claim process to help third-party payers and their clients correct incorrect claims. Third-party payers, such as payroll companies, filed ERC claims for multiple employers under their EINs, causing complications when clients wanted to correct their claims. The new supplemental claim process allows third-party payers to withdraw claims for some clients while maintaining claims for qualifying clients, streamlining the correction process.
The supplemental claim process allows third-party payers to correct or consolidate previous claims filed before January 31, 2024. The deadline to submit a supplemental claim is November 22, 2024, with no extensions allowed. This program aims to improve the IRS’s processing of ERC claims for a more complex segment of taxpayers and prevent improper claims. Eligible third-party payers must meet specific criteria, including filing claims using their EIN on adjusted employment tax returns and having the IRS not process any claims included in the supplemental claim.
For businesses that do not qualify for the supplemental claim process, other options are available, such as the second ERC voluntary disclosure program. This program allows businesses to repay 85% of the credit received in error for tax periods in 2021. If accepted into the program, the IRS will not charge interest or penalties on promptly repaid credits. The withdrawal option is also available for those who have filed ERC claims but have not received a refund, allowing them to avoid repayment, interest, and penalties.
The ERC program was designed to help eligible employers keep their businesses afloat by providing a credit for qualified wages paid to employees during specific periods affected by the pandemic. Eligible employers must demonstrate shut down by a government order or a decline in gross receipts during specific quarters. The credit is 50% of up to $10,000 in wages per employee in 2020 and up to $21,000 per employee in 2021. The IRS provides a checklist to help determine eligibility for the ERC.
Businesses seeking more information about ERC claims and eligibility can refer to the IRS website, which provides FAQs addressing various aspects of the ERC program. Penalties for submitting incorrect ERC claims can be severe, with potential criminal implications based on the circumstances. Consulting with a trusted tax advisor can help businesses navigate the ERC process and determine the best course of action for correcting claims and avoiding penalties.
