IRS Halts Processing of New ERC Claims: What You Need to Know

The IRS recently made a surprising announcement that has left many individuals and businesses concerned. They have temporarily halted the processing of new Employee Retention Credit (ERC) claims. The ERC was introduced as part of the CARES Act in March 2020 to assist businesses in retaining employees during the pandemic. It provided eligible employers with a refundable tax credit based on qualified wages paid to employees, capped at $26,000 per employee.

Several factors led to the IRS’s decision to pause new ERC claim processing:
  1. Overwhelming Demand: The ERC program has attracted an enormous number of applicants due to its attractive incentive of up to $26,000 per employee. This surge in demand has overwhelmed the IRS, causing significant processing delays and backlogs.
  2. Resource Constraints: The IRS has been grappling with resource constraints, including staff shortages and technological limitations. While the recent allocation of nearly $80 billion in funding through the Inflation Reduction Act is a step in the right direction, it will take time to hire and train new personnel, update processes, and deploy new technology.
  3. High Occurrence of Fraud: A major factor contributing to the decision to halt processing new ERC claims is the prevalence of fraudulent applications. Unscrupulous individuals and businesses have exploited the program’s complexity and the IRS’s backlog to submit fraudulent claims, diverting funds intended for legitimate applicants.

For those who were relying on ERC, it’s important to note that the temporary halt in processing new claims does not affect previously approved claims or payments. If you’ve already received ERC benefits, those will continue as expected.

If you were planning to apply for ERC benefits or are waiting for your claims to be processed, it’s crucial to stay updated on IRS announcements and guidance. The IRS’s pause aims to allow them to catch up on the backlog, streamline processes, and address the issue of fraudulent claims.

This decision to pause new ERC claims underscores the necessity for a thorough review and adjustment of the program to ensure the equitable and efficient distribution of relief funds. As we await further updates from the IRS, it is vital for businesses and individuals to remain vigilant and consult with tax professionals for guidance in this evolving situation.

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