The IRS has recently entered the next stage of reviewing ERTC claims. If you’ve submitted a claim and are waiting for a tax credit, it’s important to understand what this update means for your business. In this post, we’ll summarize the latest IRS update, discuss what you can expect if you filed before or after September 14, 2023, and explain the potential outcomes for your ERTC claim. We’ll also emphasize our role as a payroll company dedicated to supporting your business through this process.

Understanding the Latest IRS Update on ERTC Claims

On June 20, 2024, the IRS announced significant updates to their ERTC review process to safeguard against improper claims. According to the IRS, a detailed review has indicated that a vast majority of the claims currently in the pipeline present a risk of being improper. This finding has led to a more rigorous review process for ERTC claims to ensure that only eligible businesses receive the credit. You can read the full IRS update here: IRS enters next stage of Employee Retention Credit work; review indicates vast majority show risk of being improper.

Digitization of ERTC Claims and Findings

The IRS took a major step in streamlining the ERTC review process by digitizing all claims submitted before September 14, 2023. This move was aimed at efficiently categorizing and assessing the risk associated with each claim. The digitization effort revealed some concerning statistics about the quality and legitimacy of the claims:

1. High-Risk Claims: Approximately 10-20% of the digitized claims fell into the highest-risk category. These claims showed significant inconsistencies or red flags that suggest they might be improper. As a result, these claims are expected to be either denied outright or subjected to extensive further investigation.
2. Moderate-Risk Claims: A substantial 60-70% of the claims exhibited an “unacceptable level of risk.” This category includes claims that may have documentation issues, errors, or other discrepancies that prevent the IRS from easily confirming their legitimacy. These claims will require additional verification steps and more detailed scrutiny before any credit can be issued.
3. Low-Risk Claims: The remaining 10-20% of claims were identified as low-risk. These claims appear to have the necessary documentation and meet the eligibility criteria set by the IRS. As a result, they are expected to be processed more quickly and with fewer delays.

What to Expect if You Filed Before or After September 14, 2023

The IRS has made a clear distinction between claims filed before and after September 14, 2023. If your business submitted an ERTC claim before this date, your claim might undergo a more intensive review. This includes a higher likelihood of requests for additional documentation or explanations to substantiate your eligibility. Claims filed after September 14, 2023, are expected to benefit from refined processing strategies designed to expedite lower-risk claims.

IRS Instructions: Do Not Contact Them

One of the key messages from the IRS is clear: if you have already filed an ERTC claim, there is no need to contact the IRS to check on the status of your claim. The IRS is currently focused on processing these claims as efficiently as possible and has stated that additional inquiries will not expedite the process. They are instructing claimants to wait for any requests for additional information or updates directly from the IRS.

Breaking Down the IRS’s Expected Claim Outcomes

According to the IRS, the claims in the review pipeline fall into three broad categories:

1. High-Risk Claims: These claims are expected to be denied or subjected to further scrutiny. The IRS estimates that a significant portion of the current claims might fall into this category due to inconsistencies or insufficient documentation.
2. Moderate-Risk Claims: These claims require additional verification but show potential for eligibility. The IRS will likely request more information to validate these claims before making a final decision.
3. Low-Risk Claims: These claims are anticipated to be processed more quickly. If your claim falls into this category, you can expect it to move through the system with fewer delays.

The IRS aims to focus on processing lower-risk claims promptly to ensure that eligible taxpayers receive their refunds as soon as possible.

Reasons Your ERTC Claim Might Be Denied or Delayed

While the IRS has not provided an exhaustive list of reasons for denying or delaying ERTC claims, several common issues have been identified in previous reviews:

• Inadequate Documentation: Failing to provide sufficient proof of eligibility, such as payroll records or financial statements.
• Errors in Claim Filing: Mistakes in the information provided on the claim form, such as incorrect taxpayer identification numbers or miscalculations.
• Non-Compliance with Eligibility Requirements: Not meeting the specific criteria set forth by the IRS for the ERTC, such as the decline in gross receipts or suspension of operations due to government orders.

For more detailed insights, consider referring to resources like this article from the Journal of Accountancy, which discusses common pitfalls in ERTC claims.

How Long Will It Take for Your ERTC Claim to Be Processed?

Given the new review process, the timeline for receiving your ERTC refund can vary widely. Low-risk claims may see processing times improve, with checks potentially being issued within a few weeks to a couple of months. However, high-risk and moderate-risk claims will likely experience delays due to the additional scrutiny required. It is reasonable to expect that these claims could take several months to resolve, depending on the complexity of the issues identified and the responsiveness of the claimants to IRS requests for additional information.

Our Role in Supporting Your Business

At Asure Software, we understand the importance of timely and accurate payroll processing, especially when it comes to crucial tax credits like the ERTC. While we are not tax preparers, our expertise as a payroll company allows us to provide the best available information to support your business. We fully support the IRS’s efforts to prevent fraud and ensure that the ERTC benefits eligible businesses.

By staying informed and prepared, you can navigate the ERTC claim process more effectively. If you have any questions about your payroll or need assistance with documentation, our team is here to help. Together, we can ensure that your business remains compliant and that you receive the credits you’re entitled to.

Stay Updated

For the latest updates on the ERTC and other payroll-related news, be sure to follow our blog and subscribe to our newsletter. We’re committed to keeping you informed and helping your business succeed.

Conclusion

The IRS’s enhanced review process for ERTC claims underscores the importance of accuracy and thoroughness in your submissions. By understanding the potential outcomes and preparing for possible delays, you can better manage your expectations and ensure your business remains compliant. As your trusted payroll partner, Asure Software is here to support you every step of the way. For more information, read the full IRS update here: IRS enters next stage of Employee Retention Credit work; review indicates vast majority show risk of being improper.

Stay informed, stay compliant, and let’s navigate this process together.