Why Am I Experiencing Employee Retention Credit Refund Delays?
By now, you’ve probably heard about the Employee Retention Credit (ERC), also called the Employee Retention Tax Credit (ERTC). If you haven’t, you can check out our ERC FAQ blog.
Many businesses are either still questioning if the process is worth the wait , or are waiting to hear back from the IRS about their filed claim. By the second quarter of 2022, the IRS had over 10 million payroll tax returns that weren’t yet processed.
Though the process is not expected to speed up necessarily, the IRS has received funding to accelerate its operations. Below, we’ll discuss why there are ERC refund delays and what you can do to make sure you get cash flowing back into your business sooner rather than later.
Current IRS Processing Times
The time it takes for the IRS to process your business’s ERC refund depends on what form you submitted and how much money you were seeking per qualifying quarter. The delays are partly caused by the IRS’s processing procedures.
For example, the Original Form 941 (when submitted in a timely manner) could have been completed electronically. However, when filing amended documents — such as Form 941-X — it must be filled out on paper and mailed. Once it’s taken to the IRS by hand, it must be sorted and scanned, which takes additional processing time.
If you filed your business’s claim with the original Form 941:
All new ERC claims must include Form 941-X along with other required documents, which retroactively amend your previously submitted 941 Forms for 2020 and 2021. If you submitted an ERC claim when you originally filed your 941s, then your business most likely has already received its ERC refund.
If you filed your business’s ERC claim with the Form 941-X:
Currently, the IRS has been processing these claims within approximately five to six months from the date they received them. The good news is that even if your company’s total claim was hundreds of thousands of dollars, you can still expect the same time frame.
If you filed a large claim with the Form 941-X:
Currently, the IRS has been processing million-dollar or more claims in approximately six to nine months, with some of the largest claims taking closer to 10 months. The IRS takes a little longer with these claims to make sure no detail falls through the cracks before they issue such a large sum of money to your business.
ERC Refund Delays — Explained
Training and programming challenges
A recent report by the Treasury Inspector General for Tax Administration (TIGTA) explained that a lack of training and outdated programming prevented the IRS from processing ERC claims until 12 months after the legislation was first enacted. Furthermore, there was no additional training provided for IRS employees when the process switched to include the Form 941-X, which caused further delays.
What they’re doing about it:
TIGTA has since recommended developing a systematic process for handling ERC claims — and the IRS has agreed to do so.
Guideline challenges
An error in the guidelines caused the IRS to suspend thousands of Form 941-X submissions. Many forms were therefore stuck in the IRS’s system for more than 200 days.
What they’re doing about it:
Fortunately, all forms that had been mistakenly held back got the green light for processing (p.15).
Prioritization issues
As of Jan. 29, 2022, 96% of tentative ERC refund claims experienced processing delays due to a lack of prioritization (p.16).
What they’re doing about it:
To reduce their backlog, the IRS has:
- Shifted Accounts Management employees to working only on paper returns.
- Authorized overtime for its employees.
- Increased ERC claim inventory for trained employees.
Verification challenges
Although there are different rules for a Recovery Startup Business (RSB), the IRS does not currently have a way to verify that self-proclaimed RSBs are legitimate (p.17).
What they’re doing about it:
Under penalties of perjury, the signed employment tax return can attest that the business is eligible for the ERC strictly because the business qualifies as an RSB.
What You Can Do About ERC Refund Delays
When it comes to a business’s eligible ERC refunds, we have to rely on time-proven methods to keep the process going. First is, of course, patience and keeping an eye on updates made by the IRS and TIGTA.
To check on the status of your business’s ERC refund, you can call the IRS or go to their online portal. It’s a good idea to check your status fairly frequently, as you never know when your company’s claim will get processed.
Business owners should still apply despite ERC refund delays
What’s worse than experiencing ERC refund delays? Not getting any money at all. The fact is, you can’t get your ERC refund for your qualifying small business if you don’t apply. You can still claim the ERC, as the deadline for filing now extends to 2024. However, you’ll want to do your part as soon as possible so you can get your refund before it’s too late.
Additionally, ERC claims will accrue interest from qualifying quarters during the processing period. Even though it will take several months before your business’s refund is issued, at least the money will be earning interest.
Get More Money While You Wait
Even if you have already filed your business’s ERC claim, you can still earn a little extra cash for your company. If you know a business that was directly impacted by COVID-19 and may qualify for the ERC, you can refer them to Innovation Refunds.
Innovation Refunds has helped eligible businesses receive up to $26,000 per employee and will give you $1,000 for every qualified referral you submit. You can learn more about our Refer & Earn program here.
Regardless of IRS delays, the ERC is still worth looking into as many eligible companies have received six-figure refunds that they are now using to grow and support their business. By working with Innovation Refunds, your business can get the refund it deserves so you can start recovering from the pandemic and planning ahead for the future.
