IRS gives businesses 'a way out' of the employee retention credit, with instructions
Since the IRS announced the moratorium on new ERC claims in September, the agency has now released new guidelines for small employers that wish to cancel their claim if they have doubts about its legitimacy.
The ERC is a complex credit with precise requirements created to help small businesses during the pandemic, and the IRS has received approximately 3.6 million claims for the credit over the course of the program. The agency announced in September a moratorium at least through the end of this year on processing new claims so it can protect small business owners from scams.
Under the new withdrawal option, certain employers who have filed an ERC claim but have not received a refund can withdraw their submission and avoid future repayment, interest and penalties. Employers that have submitted an ERC claim that’s still being processed can withdraw their claim and avoid the possibility of getting a refund for which they’re ineligible.
“The IRS is committed to helping small businesses and others caught up in this onslaught of Employee Retention Credit marketing,” said IRS Commissioner Danny Werfel. “The aggressive marketing of these schemes has harmed well-meaning businesses and organizations, and some are having second thoughts about their claims. We want to give these taxpayers a way out. The withdrawal option allows employers with pending claims to avoid future problems, and we encourage them to closely review the withdrawal option and the requirements. We continue to urge taxpayers to consult with a trusted tax professional rather than a marketing company about this complex tax credit.”
Employers who realize they should not have filed an ERC claim can participate in the withdrawal process if all of the following apply:
- They claimed the ERC on an adjusted employment return (Forms 941-X, 943-X, 944-X or CT-1X);
- They filed the adjusted return only to claim the ERC and made no other adjustments;
- They want to withdraw the entire amount of their ERC claim; and
- The IRS has not paid the claim, or the IRS has paid the claim but they haven’t cashed or deposited the refund check.
The withdrawal procedure depends on how the original claim was filed and where taxpayers might be in the process:
- Taxpayers whose professional payroll company filed their ERC claim should consult with the payroll company. The payroll company may need to submit the withdrawal request for the taxpayer, depending on whether the taxpayer’s ERC claim was filed individually or batched with others.
- Taxpayers who filed their ERC claims themselves; haven’t received, cashed or deposited a refund check; and have not been notified their claim is under audit should make the request directly to the IRS.
Related: Employee retention credit update: Why is IRS putting a pause on processing new claims?
For more details about the ERC moratorium and withdrawal process, specific instructions are available at www.IRS.gov/withdrawmyerc.