In light of ongoing ERC scams, the IRS has announced a new withdrawal process for those who filed an ERC claim and are now doubting their eligibility and have yet to receive said refund. Here is what you should know.

What is the Employee Retention Credit (ERC)?

The ERC is a refundable tax credit based upon qualified wages an employer pays to its employees applied against certain employment taxes (Social Security, Medicare, etc.)

Generally, there are 2 ways to qualify for the credit –

• The 1^st criteria – You experienced a full or partial suspension of operations during 2020 or 2021 because of governmental orders limiting commerce and impacting your business.

• The 2^nd criteria – You had at least a 50% decline in gross receipts in any calendar quarter in 2020 compared to the same quarter in 2019 (20% decline in gross receipts in any calendar quarter in 2021 (or Q4 2020) compared to the same quarter in 2019).

ERC Processing Halt

Due to a surge in fraudulent claims for the ERC, the IRS placed an immediate halt on processing any new ERC claims received, effective September 14, 2023. This halt will continue through at least the end of 2023.

What is the new withdrawal process?

Did you file an ERC claim after being pressured or misled by ERC marketers or promoters? Certain employers that filed a claim and are now doubting their eligibility and have not yet received said refund now have the option to withdraw their submission and avoid future repayment of amounts claimed and assessed interest and penalties.

What if you submitted a claim that is still being processed?

Employers in this situation can withdraw their claim, thus avoiding receiving an ineligible refund.

Withdrawn claims will be treated like they were never filed and will not incur any penalties or interest.

Who is eligible?

If all of the following criteria are met, employers can use the new ERC claim withdrawal process:

• The claim was made on an adjusted employment return (Forms 941-X, 943-X, 944-X, CT-1X).
• The adjusted return was filed only to claim the ERC (i.e. no other adjustments were made)
• The employer wishes to withdraw their ERC claim in the entire amount
• The IRS has not paid the claim. If the IRS has paid the claim, the employer must not have cashed or deposited the check.

What is the process for withdrawing?

The IRS has outlined detailed instructions here: https://www.irs.gov/newsroom/withdraw-an-employee-retention-credit-erc-claim

Here are the key takeaways:

1. Did a professional payroll company file your ERC claim? Consult with your payroll company—depending on if the ERC claim was filed individually or with others, the payroll company may need to submit the withdraw request on behalf of the employer.
2. Did you file the ERC claim yourself? Still waiting on your refund check, or have yet to deposit? Send your withdrawal requests to the IRS’ special ERC fax line (855-738-7609) via computer or mobile device.
3. Have you been notified that you are under audit? Send your withdrawal request to the assigned examiner. If no examiner has been assigned, respond to the audit notice notifying them.

Be vigilant against ERC scammers

In light of this announcement, the IRS continues to warn employers to be mindful of new ERC scam tactics.

Following the September 14 processing halt announcement, marketers and scammers have already adapted their strategies for falsely advising employers to claim the Employee Retention Credit (ERC). Some are pressuring employers filing ERC claims to opt for expensive upfront loans in expectation of a refund. Check out our blog, Employee Retention Credit Schemes: On the Radio, Through the Mail and In Your Inbox!

Questions? Contact us.