The IRS is urging businesses to resolve improper Employee Retention Credit (ERC) issues now. The employer deadline for the second ERC Voluntary Disclosure Program is November 22. However, the IRS has extended the deadline for third-party payers using the consolidated claim process to December 31, 2024. The third-party option was also set to close on November 22. (IR 2024-296, 11/21/2024)
Employee Retention Credit.
The ERC is a refundable tax credit for certain eligible businesses and tax-exempt organizations that had employees and were affected during the COVID-19 pandemic. Eligibility for this credit depends on very specific facts and circumstances.
ERC Voluntary Disclosure Programs.
The second ERC Voluntary Disclosure Program allows businesses that received an ERC in error to repay the credit. Generally, businesses in the program don’t have to pay penalties or interest. In addition, they don’t have to repay interest they received from the IRS on an ERC refund.
The first ERC Voluntary Disclosure Program attracted more than 2,600 applications with $1.9 billion worth of credits.
Claim withdrawal program.
For employers who don’t qualify for the second VDP, the Claim Withdrawal Program remains open. The Claim Withdrawal Program allows employers to withdraw their ERC claims. The IRS treats a withdrawn claim as if it wasn’t filed. Employers can withdraw their ERC claims without paying interest or penalties.
Consolidated claim process.
The consolidated claim process lets third-party payers that filed an ERC claim for multiple employers to withdraw the claims of the clients that don’t qualify. A third-party payer is an entity that handles a business’s payroll and tax reporting duties. Thus, if an employer using a third-party payer isn’t eligible for an ERC, the third-party needs to correct the claim.
Resolving an improper ERC claim.
Employers that can’t repay the improper amount of their ERC should apply for the VDP and request an installment agreement. Businesses that need an installment plan should request it by November 22. See Payment options for accepted second ERC-VDP applications for details.
ERC recapture and collection.
Tax laws require the IRS to use a variety of collection tools to recapture incorrect ERC payments or credits. The IRS will continue tax compliance activities on ERC claims to protect taxpayers and enforce the tax law. If the IRS finds an incorrect ERC claim after these programs end, the agency can disallow unpaid claims or require repayment of any improperly allowed ERC with penalties and interest.
For more information about the ERC Voluntary Disclosure Program (ERC-VDP), see Checkpoint’s Federal Tax Coordinator ¶ T-10164.11.
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