Thousands of businesses that filed for the Employee Retention Tax Credit (ERTC) have been waiting much longer than expected to receive refunds claimed when filing amended returns on paper 941-X forms. Unfortunately, those businesses may have to wait even longer.
Since the pandemic began, the IRS has experienced significant delays in processing individual and business tax returns plus a flood of amended Forms 941 to claim the ERTC. As of October 30, 2021, the IRS reported a backlog of more than 2.7 million unprocessed amended returns and the estimated processing time was more than 20 weeks (though many believe the time is much longer than that). This led the IRS Taxpayer Advocate Service to suspend accepting cases where the sole issue involves the processing of amended returns.
Further complicating matters is the fact that the Infrastructure Investment and Jobs Act (IIJA) signed into law on November 15, 2021, repeals the ERTC as of September 30, 2021. In a previous blog post, Time’s Up for Pandemic Relief: Employee Retention Tax Credit Program Cut Short, we covered some of the basics of the IIJA’s impact on ERTC including revised eligibility dates and what your business needs to do to maintain compliance.
In this article, we’ll focus on the current situation including processing delays and what to do if your business underpaid tax amounts for the fourth quarter of 2021. We’ll also review some ERTC eligibility rules so you can determine if you qualify as a Recovery Startup Business or if you can file retroactively for credits between March 13, 2020 and September 30, 2021.
Where’s my refund?
Unfortunately, the significant backlog and processing delays for ERTC claims may continue well into 2022. The 2021 ETAAC Report to Congress noted that an amended Form 941-X may take six to nine months or more to process. The National Payroll Reporting Consortium recently sent a letter to the IRS requesting the acceleration of Forms 941-X processing. As pointed out, there is no e-file option to submit the 941-X, Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund, even if the original 941 was filed electronically.
Additionally, the letter addresses the fact that 941-X processing has been delayed and even suspended as it is not considered a priority. Thousands of businesses have reported the submission of amended returns that were received by the IRS in early 2021 but remain unprocessed and as a result, the IRS is issuing failure to deposit and intent to levy notices because the employer’s deposits appear to be less than their reported liabilities. The letter also reports that a review of irs.gov indicates there are about 340,000 Forms 941-X in inventory and many of those likely involve ERTC.
Fourth quarter repeal of ERTC causes headaches
The repeal of the ERTC program as of September 30, 2021 under the IIJA will cause a number of problems for businesses that anticipated receiving that credit during the fourth quarter of 2021. The IRS has not yet issued guidance on how to handle any credits that were already claimed for the fourth quarter. Some employers may have reduced their tax deposits in anticipation of the credit and now face employment tax compliance issues. Other employers may have included the amount of the fourth quarter ERTC in their budget projections.
If your business expected to receive the ERTC and reduced its fourth quarter payroll tax deposits, many experts recommend determining the amount owed and paying it as soon as possible. Based on previous notices issued by the IRS, experts believe it is unlikely that employers who reduced payroll tax deposits in anticipation of receiving ERTC will be subject to failure to file penalties. Additionally, the AICPA asked the House Ways and Means Committee to issue a directive to the IRS and Treasury to “waive any penalties and provide a reasonable, practical method for payment of unpaid employment taxes.”
Eligible “recovery startup” businesses can still claim ERTC in Q4
Even though the IIJA eliminates the ERTC for the last quarter of 2021 for most businesses, it’s worth pointing out that businesses qualifying as “Eligible Recovery Startup Businesses” are still able to claim the ERTC in the fourth quarter. To be eligible, the business had to begin carrying on any trade or business after February 15, 2020 and gross receipts must not exceed $1 million. A tax-exempt organization may also qualify as a Recovery Startup Business.
The Journal of Accountancy explains, “Although the limit on the maximum ERC in the first half of 2021 of 70% of up to $10,000 of an employee’s qualified wages per calendar quarter (i.e., $7,000) continues to apply to the third and fourth calendar quarters of 2021, the notice notes that a separate credit limit of $50,000 per calendar quarter applies to recovery startup businesses (after application of the $10,000 wage limit).”
Any eligible business can claim retroactively to March 12, 2020
Many business groups and tax professionals highly recommend that employers take a closer look to see if they are eligible to claim ERTC for qualified wages paid between March 12, 2020 and September 30, 2021 and file retroactively. Amended Forms 941-X would need to be filed for each quarter where the credit is claimed and must be filed before the statute of limitations expires, which has been extended to five years from the date of the originally filed return. It may take time to process but claiming these benefits can provide a much-needed boost to your bottom line.
Need help with ERTC?
Pandemic relief programs and funds are wrapping up. If you think your business qualifies, the clock is ticking. Do you know how to claim Employee Retention Credits for the first three quarters of 2021? Does your business need to take corrective action regarding your ERTC fourth quarter credits?
If your company needs help,Asure can assist with reviewing qualified wages, calculating the credits, and filing the necessary forms that allow you to claim your ERTC credits with the IRS. We can also help ensure you’re taking the right steps to maintain compliance.