ERC Update: Critical 2024 Changes Every Business Needs to Know
In September 2024, there have been several important updates regarding the Employee Retention Credit (ERC). This blog will cover the latest IRS actions, legislative developments, and key deadlines businesses should be aware of in this comprehensive ERC update.
1. ERC Update: New IRS Payback Scheme for 2021 Claims
The IRS has launched a second Voluntary Disclosure Program for businesses that received the ERC in 2021. This new ERC update offers businesses the chance to repay 85% of their ERC claims while keeping the remaining 15%, tax-free.
- Eligibility: To qualify, businesses must have received ERC refunds for 2021 before August 15, 2024, and meet the following criteria:
- Not under a criminal investigation.
- The IRS hasn’t received third-party information questioning your ERC compliance.
- No ongoing IRS employment tax examination for 2021.
- No notification from the IRS about recapturing your ERC.
Businesses using a third-party payer (such as a Professional Employer Organization) can also participate, as long as the third-party payer submits the application.
How to Participate in the Payback Program
Eligible businesses need to submit IRS Form 15434 by November 22, 2024. After submission, the IRS will prepare a closing agreement, which must be signed and returned within 10 days.
2. Legislative ERC Update: The Impact of H.R. 7024
A major legislative change, H.R. 7024, poses significant changes to the ERC and introduces new penalties and deadlines.
Penalties for ERC Promoters: Under H.R. 7024, penalties for those promoting ERC claims could rise sharply. Promoters could face fines up to $200,000, or 75% of their gross income related to ERC services.
Promoters are defined as anyone who charges fees based on the ERC refund amount or provides assistance in filing for the credit.
Statute of Limitations: H.R. 7024 proposes extending the statute of limitations for ERC claims to six years, starting from:
- The date of the original employment tax return.
- The date treated as the filing date under current laws.
- The date the ERC refund or credit was issued.
ERC Claim Deadline: The current filing deadline for 2021 ERC claims is April 15, 2025, but if H.R. 7024 passes, this deadline could shift to January 31, 2024.
3. Ongoing Delays in IRS ERC Processing
The IRS is struggling with a significant backlog of ERC claims, with 1.4 million claims still unprocessed as of September 2024. Here’s the latest ERC update on the situation:
- Payments Starting: The IRS has announced that 50,000 claims have been moved to the payment stage, and disbursements will begin this month.
- Denials Issued: Along with payments, the IRS has sent out 28,000 disallowance letters to businesses whose claims were denied. While concerns about errors in these letters exist, the IRS maintains that over 90% were correctly issued.
In addition to processing delays, the IRS has thousands of ERC claims under audit, further complicating the timeline for businesses awaiting payments.
4. ERC Update: What Businesses Should Do Next
As the IRS continues to roll out new programs and Congress debates changes in ERC legislation, businesses need to be proactive. Here’s a quick ERC update on what you should focus on:
- Voluntary Disclosure Program: If you’re considering participating in the new payback scheme, ensure you file Form 15434 by November 22, 2024.
- Claim Deadlines: Keep an eye on H.R. 7024, as it could accelerate the ERC filing deadline to January 31, 2024.
- Audit Risks: Be prepared for audits or disallowances, especially with the IRS focusing heavily on ERC claims.
Final Takeaways
This ERC update highlights a constantly evolving landscape. The IRS continues to introduce new programs, such as the second payback scheme, while Congress is considering significant changes that could tighten penalties and shorten filing windows. As a business, staying informed is crucial. Make sure you act quickly to secure any remaining ERC refunds and keep an eye on future updates.
For further assistance or advice, consult a tax professional familiar with the latest ERC update developments.