Essential Information To Avoid Misuse & Maximize Your Employee Retention Credit Benefits
While the Employee Retention Credit has been a helpful tax credit for many businesses, there has been rumblings of businesses improperly claiming the credit, whether intentionally or unintentionally. When the tax credit became available, misleading marketing led to a flood of claims and the IRS was taxed with the mammoth job of deciphering those that should get the tax credit, and those that do not qualify.
This massive flood of claims has slowed down the process of paying out the tax credits to businesses with valid claims and caused a moratorium in late 2023. However, in the last few weeks, the IRS has taken new steps to move faster with the process, sending out disallowance letters and ensuring valid claims are moved forward as well as taking on new claims again.
Arizona taxpayer education has become even more essential to help businesses understand what they qualify for and to help them avoid false and deceptive marketing. As the IRS begins processing ERC claims again, it is essential to be educated and aware of business rights and what tax claims are relevant to them.
What Is The Employee Retention Credit?
So what exactly is the Employee Retention Credit and when did it start? In March 2020, when the Covid-19 pandemic was hitting the news and businesses were beginning to see the impacts, the government initiated the Employee Retention Credit as a part of the CARES Act. The goal was to give businesses a tax credit to help them keep employees on their payroll with the hopes of keeping them in business.
The way it works is to allow certain businesses to claim a percentage of certain wages paid to employees during certain time frames during the pandemic. Starting in March 2020, the program extended several times to allow claims through most of 2021.
Important Deadlines To Remember For The Employee Retention Credit
Businesses can still claim their ERC tax credits by amending their payroll tax returns for 2020 and 2021 by using a specific form. The IRS put a moratorium on new claims for a time, using the time to digitize the claims they already had, hoping this would speed up the process of validating and denying claims. During that time, no new claims were allowed, but they have recently opened up the ability to file again.
At this point, the deadline to amend a business’ payroll tax return and file for the ERC is April 15, 2025. Once the deadline is past, businesses will no longer have the option to file. At events hosted by an Arizona tax non-profit organization, you may find resources and guidance on how to apply before the deadline.
How a Business Qualifies For The Employee Retention Credit
There are several criteria that allow businesses to file a claim for the Employee Retention Credit if they were impacted during the 2020 and/or 2021 timeframe. The criteria includes:
- The business must have been impacted by a full or partial shut-down mandated by the government as a result of COVID-19
- The business must have seen a significant reduction in gross receipts. 50% reduction in 2020 and 20% or more in 2021.
- Businesses that started after February 1, 2020 and were making less than $1 million could qualify for limited ERC in the third and fourth quarters of 2021
For those that want more information on helping businesses determine if they’re eligible, at the Arizona tax forum, you can find experts that can provide guidance.
When Businesses Can Expect Their Tax Credit
It is no surprise that many businesses are anxiously awaiting their tax credit. The tax credits typically process between several weeks to several months, however, due to the backlog of claims at the IRS and the moratorium, the timeline may be longer.
In recent weeks, the IRS has identified 50,000 valid ERC claims and are working to quickly move them forward in the process. They have also sent out 28,000 denial letters to businesses that do not qualify. While it is still taking the IRS time, they have removed the moratorium and are taking on new claims, indicating that the new measures they have taken are working, and businesses should see their claims being processed soon.
How The IRS Is Implementing New Measures So Businesses Can Be Paid
The IRS has been busy implementing new measures to work towards paying the tax credits to eligible businesses. Because of the incredible volume of ERCs, the IRS has worked to increase their staff, reducing processing times.
Working to digitize the claims, they have also worked to streamline the processing. Not only that, but the IRS has also identified the low risk claims and decided to expedite the payments, knowing that they meet specific criteria.
If you’re someone who is engaged in Arizona tax continuing education for attorneys, it is essential to keep informed about the IRS procedures and updates so that you can advise your clients in the ever-changing landscape of tax law.
Discover Quality Education, Cooperation & Understanding At Our Arizona Tax Forum
For more information about tax law, educational opportunities, or solutions to your tax-related challenges, contact the Arizona Forum for Improvement of Taxation (AFIT). As a coalition of the Arizona Bar, Arizona Society of Enrolled Agents, Arizona Association of Accounting and Tax Professionals, and the Arizona Society of CPAs, with liaisons from the IRS and the Arizona Department of Revenue, AFIT is committed to helping tax professionals stay informed and address pressing tax administration issues.
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