IRS ERC Update 2024 – Details about the Employee Retention Credit!

The Internal Revenue Service (IRS) recently announced updates regarding the Employee Retention Credit (ERC) program on June 20, 2024. These updates address the processing of claims, potential legislative changes, and a reminder for employers to ensure the accuracy of their claims.

IRS ERC Update 2024

The Internal Revenue Service (IRS) has recently announced updates regarding the Employee Retention Credit (ERC), a program established by Congress in March 2020 to support businesses affected by the pandemic. 

The ERC allows eligible employers to claim tax credits for retaining employees during periods of significant revenue decline or government-mandated closures. 

The IRS implemented a moratorium on processing new ERC claims submitted after September 14, 2023. This pause allows them to focus on the backlog of existing claims and address concerns about a high number of potentially fraudulent claims.

IRS ERC Eligibility Criteria

The eligibility criteria for IRS ERC is:

  • Business or Tax-Exempt Organisation: You must have been a business or tax-exempt organisation that paid qualified wages to employees after March 12, 2020, and before January 1, 2022.
  • Household employers are not eligible.

Meeting One of Two Criteria:

  • There are two main ways a business could qualify for the ERC:
    • Significant Decline in Gross Receipts:
  • You experienced a more than 50% decline in gross receipts compared to the same quarter in 2019. This applies to qualifying quarters in 2020 and quarters 1-3 of 2021.
  • OR
    • You experienced a less than 80% decline in gross receipts compared to the same quarter in 2019. This applies only to quarters 3 and 4 of 2021.
  • Full or Partial Suspension Due to Government Orders:
    • Your operations were fully or partially suspended due to a government order related to COVID-19.
  • The specific eligibility requirements and credit amounts varied depending on the quarter.

IRS ERC Challenges & Updates 

The Employee Retention Credit (ERC) program, designed to help businesses retain employees during the pandemic, has faced significant challenges in 2024. The current challenges and updates according to the situation are:

Challenges:

  • Fraudulent Claims: A major concern for the IRS is the high number of potentially fraudulent ERC claims.Aggressive marketing tactics by unscrupulous promoters led many businesses to believe they qualified when they didn’t.
  • Processing Backlog: The influx of claims, coupled with the need for increased scrutiny, created a backlog for the IRS. This resulted in a processing moratorium on new claims submitted after September 14, 2023.
  • Voluntary Disclosure Program Ended: The program allowing businesses to correct mistakes without penalty concluded in March 2024.

Updates:

  • Intensified Review of Existing Claims: The IRS is meticulously reviewing existing claims. Their initial analysis revealed a significant portion showing risk of ineligibility. Employers can expect potential audits or requests for additional documentation.
  • Focus on Improper Claims: The IRS has begun issuing letters to entities with potentially improper claims. These letters detail the discrepancies and potential tax assessments.
  • Potential Legislative Changes: The IRS is advocating for legislative changes, including:
    • Ending the ability to file new ERC claims altogether.
    • Extending the statute of limitations for the IRS to assess errors. This could give them a six-year window (compared to the standard three years) to investigate discrepancies.

IRS ERC Payment Amount 

The IRS ERC payment amount depended on several factors, including:

  • The specific quarter you were claiming for (between March 2020 and December 2021): Eligibility criteria and credit amounts changed throughout the program.
  • Whether you qualified based on a decline in gross receipts or a full/partial suspension: The tests for eligibility determined the maximum credit you could claim per employee.

Credit Percentage:

  • 2020 Claims and 1st three quarters of 2021: For businesses meeting the decline in gross receipts test, the credit was initially 70% of qualified wages paid to each employee, with a maximum of $10,000 per employee per quarter.
  • Exception for Recovery Startup Businesses (Q3 & Q4 of 2021): These businesses, meeting specific requirements, could claim a credit of up to $50,000 per employee for the third and fourth quarters of 2021.
  • Full/Partial Suspension Due to Government Orders: The credit amount varied depending on the specific quarter and the percentage of your workforce that was unable to work.

IRS ERC Payment Processing

The processing of ERC payments has become a complex issue due to concerns about fraudulent claims. Here’s a breakdown of the current situation:

Pre-Moratorium Process (Before September 14, 2023):

  • Employers claimed the ERC by filing amended quarterly tax returns (Form 941-X) with the IRS.
  • The IRS reviewed the claims and issued payments electronically or by mail if approved.
  • Processing times varied depending on workload but generally took several weeks.

Current Situation (Post-Moratorium):

  • New Claims On Hold: The IRS halted processing new claims submitted after September 14, 2023, to address a high volume of potentially fraudulent claims.
  • Existing Claims Under Review: The IRS is meticulously scrutinizing existing claims. This may involve:
    • Automated checks: Comparing claim data with other IRS records to identify inconsistencies.
    • Manual review: IRS personnel may request additional documentation or clarification from employers.
    • Potential Audits: The IRS may initiate audits of claims deemed high-risk.

To Get The Latest Updates. Go to NCBLPC Homepage.

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