01 OCT 2024 / IRS UPDATES

IRS Opens Way to Set ERC Records Straight

Ever felt like you’re caught in a tax maze? Well, third-party payers dealing with the Employee Retention Credit (ERC) might just have found an exit, thanks to a fresh announcement by the IRS. Third-party payers who used their EIN (Employer Identification Number) to file one or more claims on behalf of themselves or their clients can take advantage of this process, provided their claims haven't been processed by the IRS yet.

Now, with the introduction of a new supplemental claim process aimed at helping third-party payers and payroll companies resolve incorrect ERC claims, this comes as a sigh of relief, especially for those who filed claims for multiple clients and later realized that some of them didn’t qualify. Here’s the deal: If you’ve got an ERC claim that’s about as legit as a $3 bill, now’s your chance to fix it – but there’s a deadline to watch out for!

This isn't the first time the IRS has taken action to clear up the ERC confusion. Just last month, the IRS reopened its voluntary disclosure program, giving businesses that wrongly claimed the credit a chance to repay 85% of it without facing penalties, interest, or the dreaded audit. This program, open until November 22, was a significant effort to encourage businesses to come clean on mistaken claims, emphasizing the IRS's intention to keep things fair without going full throttle on enforcement.

The ERC was a juicy tax credit that many businesses jumped on during the pandemic, but some took a wrong turn. Now, third-party payers can "withdraw" claims for clients who shouldn’t have claimed the ERC while keeping the valid ones intact. Talk about separating the wheat from the chaff, right?

As IRS Commissioner Danny Werfel put it, this move is a “critical step” to streamline the process and ensure eligible businesses can receive the credits they deserve while clamping down on erroneous claims. Werfel added, "We continue to explore and develop additional ways to speed our work on this incredibly detailed credit where the number of claims exploded following aggressive marketing."

For third-party payers who filed claims before January 31, 2024, and haven’t had them processed yet, you can now file a supplemental claim to correct any inaccuracies. In simple terms, it means you can adjust your claim for your non-qualifying clients without touching the valid ones. Think of it as hitting the “undo” button on your tax mistakes!

To file, you’ll need to use the appropriate adjusted employment tax return form (941-X, 943-X, 944-X, or CT1-X) based on your business type. And don’t wait too long – you have until 11:59 p.m. on November 22, 2024, to fax in your claim. Missing that deadline? Well, that’d be a major facepalm moment.

However, this process isn’t for everyone. If you didn’t use a third-party payer or if you’ve already received the full ERC amount, you might need to explore other options.

Once you file, the IRS will take a peek at your supplemental claim and decide whether it’s good to go, partially allowed, or needs a closer look. If accepted, this supplemental claim will become the sole record for your tax period, and any previous claims will be treated like they never happened. Know more from here.

So, if you’ve been sweating bullets over an ERC claim, here’s your chance to get things right. Remember, the tax world doesn’t hand out “do-overs” every day, so grab this opportunity while you can!