Small businesses across the United States have been grappling with the economic fallout of the COVID-19 pandemic. To aid them during these trying times, the Employee Retention Credit (ERC) was introduced as part of pandemic-era relief measures. However, the processing of ERC claims came to an abrupt halt, causing concerns and confusion among business owners. House Republicans are now pressing the Internal Revenue Service (IRS) for answers regarding this pause and its impact on small businesses.
The Employee Retention Credit (ERC):
The Employee Retention Credit was established to support small businesses by providing financial relief during the COVID-19 pandemic. Worth thousands of dollars per employee, the ERC was designed to help businesses retain their workforce and weather the economic storm. However, the rollout of this credit was not without its challenges.
A Flood of Amended Returns:
One of the issues that arose with the ERC was a surge in amended tax returns filed by businesses. Many of these amended returns were submitted based on incorrect advice from specialist firms. This influx of paperwork overwhelmed the IRS, leading to delays in processing and the accumulation of a significant backlog of unprocessed claims.
House Republicans’ Concerns:
In response to the ongoing issues surrounding ERC claims, House Ways and Means Committee Chairman Jason Smith and Oversight Subcommittee Chairman David Schweikert have sent a letter to the IRS. They expressed their “continued concerns” about the program and requested updates on the backlog of unprocessed ERC claims. The letter posed several critical questions about the ERC program, including the number of unprocessed claims, plans to clear the backlog, and improvements to streamline the processing of legitimate claims.
The Backlog of Unprocessed ERC Claims:
As of September 27th, the IRS reported a total inventory of approximately 779,000 unprocessed Forms 941-X, which are used to amend an employer’s quarterly federal tax returns. However, the actual backlog of ERC claims may be much higher due to the involvement of professional employer organizations (PEOs). These organizations provide payroll and HR services to multiple small businesses. A single PEO claim can represent numerous small businesses, making it challenging to assess the true extent of the backlog.
Challenges and Complexities:
The IRS justified its decision to slow down the processing of ERC claims by citing the complexity of the amended returns and the rise in companies that encouraged ineligible small businesses to claim the credit. Pat Cleary, President and CEO of the National Association of Professional Employer Organizations, emphasized the urgency of the situation, stating that “There’s a ton of small businesses waiting for money.” Cleary urged the IRS to distinguish PEO claims from questionable ones, recognizing that these are established businesses with long-term relationships.
The pause in processing small business tax credit claims has raised significant concerns among House Republicans, who are now demanding answers from the IRS. Small businesses that were counting on the Employee Retention Credit to stay afloat during the pandemic have been left in limbo due to the backlog of unprocessed claims. It remains to be seen how the IRS will address these issues and whether improvements will be made to ensure the efficient processing of legitimate claims while preventing fraudulent ones. Small business owners are undoubtedly eager for a resolution to this matter, as they continue to navigate the challenges posed by the ongoing pandemic.