New York Democratic Senator Kirsten Gillibrand has asked the IRS commissioner to provide information on the current state of the backlog of unprocessed employee retention credit (ERC) claims and when taxpayers can expect to submit future claims electronically.
The ERC was established during the COVID-19 pandemic to provide an incentive to employers to keep employees on their payroll as a way to prevent further job losses. Gillibrand observed in her May 4 letter to IRS Commissioner Daniel Werfel that she has heard from her constituents that some businesses “have yet to receive their tax refunds for claims filed during the 2021 and 2022 tax seasons.”
ERC claims are made using Forms 941-X, Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund. As of right now, the only way to submit a Form 941-X is by completing and mailing a paper form; there is not yet an electronic filing option. Gillibrand blames this limitation, as well as “chronic underfunding” at the IRS, for what has become a backlog of Form 941-X inventory. In mid-April, there were about 961,000 Forms 941-X in need of manual processing. According to Gillibrand, the backlog has only grown since.
In September 2022, the Treasury Inspector General for Tax Administration reported on some internal struggles contributing to delays, such as with implementing legislative changes from the Infrastructure Investment and Jobs Act. The ERC could only be claimed on wages paid before October 1, 2021, unless the employer is a recovery startup business. TIGTA found that the IRS lacked “processes to verify a recovery startup business or effective controls to deny the Employee Retention Credit for non-recovery startup businesses.” Further, the IRS did not begin work on amended employment tax returns with pandemic-relief credits until eight months after applicable procedures were in place.
Gillibrand asked Werfel to respond by May 18 with details on the ERC backlog, including a state-by-state breakdown of unprocessed Forms 941-X. She also requested clarification on whether there are plans to eventually expand e-filing or digital scanning to the form. Werfel testified April 19, 2023, before the Senate Finance Committee that he hoped to knock out 40,000 claims per week after the end of the 2023 tax filing season. The letter posits how that is going, if additional staff is needed, and if he could deliver bi-monthly updates until the backlog is under 10,000. Finally, Gillibrand questions if the IRS has the ability to “transfer” approved ERC claims to businesses electronically.
“At the height of the pandemic, thousands of small businesses did the right thing and kept their employees on payroll,” said Gillibrand last Thursday at a video press conference. “They were promised reimbursement, but years after the fact, they still haven’t received it. I am calling on the IRS to speed up its processing to fix this problem as soon as possible and get our hard-working small business owners the refunds they deserve.”
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