The IRS Temporarily Pauses ERC Claims

The Internal Revenue Service (IRS) has recently issued an ERC moratorium, effectively pausing the processing of all new ERC claims until December 31, 2023.

What exactly does this mean for your business? Can you still submit an ERC application? And why did the IRS pause ERC claims?

We’re here to put all your questions about the IRS’s ERC pause to rest. The good news is that the ERC moratorium sounds scarier than it actually is. The even better news is that eligible businesses can still submit ERC applications through reputable ERC companies in the meantime. The only real difference this makes to legitimate ERC claims is that the processing time will be affected while the IRS cracks down on illegitimate claims and improves its processes.

Let’s dive into the details.

What Is The ERC Pause?

The employee retention credit (ERC) is a legitimate COVID-related business relief fund available to certain small businesses in the form of a tax credit that equals up to $26,000 per employee. On September 14, 2023, the IRS issued a moratorium on processing new employee retention credit claims until December 31, 2023. It’s important to note that the ERC moratorium, or ERC pause, only affects new ERC claims and only affects the processing of new claims, not the submission of new claims.

This means that during the ERC pause, the IRS will still be processing the claims of business owners who have already submitted their employee retention credit application. As of the IRS’s moratorium announcement, over 3.6 business owners had filed for the ERC credit and over 600,000 are still waiting on the IRS to process their claims.

This also means that business owners who are eligible for the ERC do not have to wait until the moratorium has ended to submit their ERC claim. The main purpose of the ERC pause is for the IRS to better filter out erroneous claims. The ERC application timeline was already long at 90 days, and with the pause in place, business owners are going to have to wait even longer to get their relief. Eligible businesses who haven’t applied for the ERC yet can get ahead of the game by submitting their ERC application now.

Why Did The IRS Pause ERC Processing?

The IRS insists that the ERC pause stems from fraudulent claims and an increase in ERC scams. With the amount of fraud discovered in the Paycheck Protection Program (PPP)–the other primary COVID-relief source for businesses–it’s no surprise that the IRS wants to slow down. According to the SBA, over $2 billion (or 17%) of all PPP funds are suspected to be fraudulent. The IRS does not want to repeat this mistake with the employee retention credit.

IRS Commissioner Danny Werfel states:

“The IRS is increasingly alarmed about honest small business owners being scammed by unscrupulous actors, and we could no longer tolerate growing evidence of questionable claims pouring in… To date, IRS-CI has uncovered suspected pandemic fraud totaling more than $8 billion. As of July 31, 2023, IRS-CI has initiated 252 investigations involving over $2.8 billion of potentially fraudulent Employee Retention Credit claims. Of those, fifteen of the 252 investigations have resulted in federal charges.”

He later states that the goal of the moratorium is to protect small business owners from claiming the ERC refund ineligibly, receiving an incorrect refund, and having to pay that refund back–or even facing criminal investigations.

While the IRS states that the main reason for the ERC pause is to protect small business owners, there’s no denying that the pause is also to protect the IRS. The government budgeted $85 billion for the ERC credit. With over 3.6 million applicants, and over $45 million “potentially erroneous nonrefundable credit allowed” according to the Treasury Inspector General For Tax Administration (TIGTA), it’s no surprise that the IRS wants to ensure that any ERC funds offered are going to real businesses who need COVID-related relief.

Because the ERC is a government-backed relief, misuse of this credit also affects everyday taxpayers, not just business owners.

The bottom line on the ERC pause is that the IRS wants to protect business owners, taxpayers, and itself by giving itself time to improve its processes to better weed out ineligible claims.

The IRS also wants to improve education on ERC eligibility to save itself time, as well as to ensure that the massive inflow of applications is from eligible businesses.

Is This The End Of The ERC?

Luckily for business owners, the ERC isn’t ending anytime soon. The ERC credit will retroactively be available to business owners until April 15, 2024 for the 2020 tax year and April 15, 2025 for the 2021 tax year, as expected.

The employee retention credit was passed as a COVID relief form as a part of the American Rescue Plan Act (ARPA). The ARPA was signed by the President and administered by the U.S. Treasury Department, meaning the law would have to be overturned for the ERC credit to end–no easy endeavor. Specialists in the ERC space also speculate that with election year coming, the ERC credit is more secure than ever.

Additionally, in the IRS’s newsroom release on the ERC moratorium, it’s clear that eligible businesses are still encouraged to apply and that this pause is temporary while the IRS improves its processes for ruling out ineligible claims.

How Long Will The ERC Pause Last?

The moratorium on processing new ERC claims is in effect until December 31, 2023.

If this time frame ends up being extended by the IRS, we will be sure to update this post and let small business owners know the latest details on the ERC pause.

I Already Applied For The ERC Credit: What Does This Mean For Me?

If you already applied for the ERC credit and are eligible for the ERC credit, the only thing that has changed is your refund will take longer to process. If you’re one of the 600,000 ERC applicants still waiting for your payout, you’re looking at a 180-day processing timeline instead of the original 90-day processing timeline. You may also be asked to provide additional documentation to prove your eligibility (although the IRS hasn’t given details on what this documentation is just yet).

If you already applied for the ERC and are not eligible for the tax credit, there are two important things to know:

1. The IRS finalized a withdrawal option where you can withdraw an unprocessed claim.
2. The IRS is going to be finalizing a settlement for victims of ERC fraud.

If you fall into the first category, learn exactly what the ERC withdrawal claim policy is, who should withdraw their ERC claim, and how the ERC withdraw process works.

If you fall into the second category, we will be updating this post as soon as the IRS has released further details.

Can I Still Apply For The Employee Retention Credit?

Eligible businesses can absolutely still apply for the employee retention credit!

Within the IRS’s moratorium announcement, Werfel encourages small businesses to:

“[S]eek out a trusted tax professional who actually understands the complex ERC rules, not a promoter or marketer hustling to get a hefty contingency fees. Businesses that receive ERC payments improperly face the daunting prospect of paying those back, so we urge the utmost caution.”

This doesn’t mean that there aren’t reliable ERC companies out there that small businesses can successfully work with; it just means that businesses need to do their research and beware of ERC scams.

Double-check your eligibility with the IRS’s resources, trust your gut about ERC preparers, and never pay fees upfront. If a company is charging more than 10%-15% for filing your ERC claim, run the other way.

At Merchant Maverick, we only partner with and promote proven, trustworthy ERC companies. We also have detailed reviews of nearly a dozen of the most common ERC companies where we take a careful look at the company’s marketing, customer reviews, support, and fees to determine if they are a legitimate ERC provider or not.

Here are the best reliable ERC companies through which you can submit claims.

The Details Of The IRS’s ERC Pause: What We Know So Far

The IRS packed a ton of information into a short article about the recent ERC moratorium announcement. Here are the key takeaways on the current state of the employee retention credit.

The IRS Is Doubling Down On ERC Scams & Improper Claims

According to a study done by the Treasury Inspector General For Tax Administration, there was already $45 million in “potentially erroneous nonrefundable employer credits allowed” by August of 2022.

With the flood of new applications and the number of new businesses popping up surrounding the ERC, it’s no surprise that the IRS is growing concerned about business owners being taken advantage of. The IRS warned about ERC scams back in March of 2023 during the publication of their annual list of tax scams, called the Dirty Dozen. So far, the IRS says hundreds of criminal cases are being worked on regarding the ERC, and thousands of tax returns are being audited.

This pause is to allow the IRS time to crack down on fraudulent ERC companies and improve ERC education so that only eligible businesses file claims.

The IRS Paused ERC Processing Not ERC Submissions

The IRS has only paused processing new ERC claims. Claims that have already been submitted will still be processed (albeit at a slower rate) and businesses who meet the ERC requirements but haven’t filed yet can still apply for the ERC (their application just won’t be processed until after the moratorium ends).

The IRS Still Encourages Eligible Businesses To File For The ERC Credit

Despite the scare the ERC pause has caused, the employee retention credit is a safe, verifiable tax credit available to certain businesses affected by the pandemic.

Like all tax credits, the ERC is only unsafe if you claim this credit but don’t meet the eligibility requirements (misusing this tax credit can just have more significant ramifications because businesses ineligibly granted a refund will likely have to pay back that refund in full which for some companies can be a huge chunk of cash).

So, if you are eligible for the employee retention credit, don’t be afraid to claim the tax credit you’re due, keep meticulous accounting records, and work with a verified ERC company or trusted accountant to fill out your ERC application.

The IRS Will Be Paying Out Claims To Eligible Businesses That Filed Before The Moratorium

If you filed for your ERC claim before September 14, 2023, the IRS will still be processing your claim. The payout timeline will just be 180 days instead of 90 days. (You may also be asked to provide additional documentation to prove your eligibility.)

The IRS Has Not Changed The ERC Eligibility Requirements For Businesses

As of now, the IRS has not changed the eligibility requirements businesses need to meet in order to receive the employee retention credit. The only difference is that the IRS has released a question-and-answer guide to help business owners tell if they are eligible for the ERC credit more easily.

The ERC question and answer guide is interactive and easy to use. Simply answer a few questions about your business during the pandemic (years 2020-2021) and you’ll be prompted through the guide to complete the ERC eligibility checklist.

Screenshot from IRS website, captured 9/28

A Settlement Will Be Coming Soon For Victims Of ERC Fraud

If you are a victim of ERC fraud, there’s hope on the horizon. The IRS is working on finalizing a settlement for victims of employee retention credit scams.

So far, what we know from the IRS is that:

“The IRS is developing new initiatives to help businesses who found themselves victims of aggressive promoters. This includes a settlement program for repayments for those who received an improper ERC payment; more details to come in the fall.”

Business Owners Who Haven’t Received Their Refunds Yet Have A Withdrawal Option

In addition to a settlement being finalized for ERC fraud victims, the IRS is has recently finalized a withdrawal policy where business owners who ineligibly filed for the ERC but haven’t received their processed refund yet (or have received their refund but haven’t cashed it yet) can withdraw their ERC application.

During the moratorium announcement, the IRS said:

“The IRS is finalizing details that will be available soon for a special withdrawal option for those who have filed an ERC claim but the claim has not been processes. This option — which can be used by taxpayers whose claim hasn’t yet been paid — will allow the taxpayers, many of them small businesses who wer misled by promoters to avoid possible repayment issues and paying promoters contingency fees. Filers of the more than 600,000 claims awaiting processing will have this option available. Those who have willfully filed fraudulent claims or conspired to do so should be aware, however, that withdrawing a fraudulent claim will not exempt them from potential criminal investigation.”

We now know that our hunch was true in that the IRS is cracking down on the “willfully filed fraudulent claims” bit. Business owners who unknowingly filed in error can now withdraw their ERC claim and the IRS says it will treat that claim as if it never happened.

The ERC Has Faced IRS Processing Issues Before

Something worth noting in the midst of the ERC pause discussion is that this is not the first time that the ERC has been paused or delayed. For example, in October of 2020, IRS employees were advised to stop processing Form 941-Xs (the form used to retroactively claim the ERTC). This pause was in effect until December, 202o when more guidance was issued by the IRS on how to correctly process ERC claims.

The current ERC pause is quite similar in that the ERC is taking a break from processing any new ERC claims until it has further ironed out its processes to prevent erroneous claims and to identify (and likely prosecute) the bad apples popping up to take advantage of taxpayers.

Screenshot from TIGTA website, captured 9/28

How To Avoid ERC Scams & Claim The ERC Safely

The best way to make sure you qualify for the ERC credit is to use the new question-and-answer ERC eligibility checklist provided by the IRS.

Working with a trusted accountant or a reliable ERC processing company like ERC Specialists or Omega Accounting can also help ensure you fill out your ERC application correctly. However, even if you are using a trusted accountant or ERC preparer you still need to check your ERC eligibility for yourself.

Check out our ERC eligibility guide to help you get started on parsing this complex tax credit and don’t forget to check back in regularly for the latest news on the IRS’s ERC moratorium.

In the meantime, if you’ve applied for the ERC and are waiting on funds, an ERC loan could help you get funds more quickly.

FAQs About The Employee Retention Credit Pause