Here’s what tax experts advise after the IRS suspends processing for the small business tax credit.
The IRS has paused processing new claims for a pandemic-era small company tax benefit, leaving some taxpayers in limbo as the agency works on more instructions.
The IRS temporarily delayed processing of revised payroll tax returns claiming the so-called employee retention tax credit, or ERC, introduced during the Covid-19 outbreak on Thursday.
The IRS claimed the scheme, worth thousands of dollars per qualifying employee, has resulted in a deluge of “questionable claims,” as a cottage economy of specialised services has sprung up, pressuring small businesses to wrongfully claim the tax relief.
“Businesses that receive ERC payments improperly face the daunting prospect of paying those back, so we urge the utmost caution,” IRS Commissioner Danny Werfel said on Thursday, asking small firms to verify claims with a trained tax expert.
Meanwhile, the IRS is developing more guidelines on how to remove unprocessed ERC claims, as well as a settlement scheme for small firms that got the credit in error and wish to repay it.
‘There’s no reason to worry.’
While impacted small companies may be concerned, “there’s no need to panic here,” said to Jennifer Rohen, a principal at CliftonLarsonAllen who specializes in ERC claims.
If you took the credit and are concerned about your eligibility, she recommends consulting with a certified tax practitioner.
To aid filers, the IRS has provided a thorough ERC eligibility checklist. The credit was created for small firms and tax-exempt organizations who paid staff during government-mandated shutdowns or saw a “significant decline in gross receipts” during specific periods in 2020 and 2021.
My general suggestion is to always consult with a trained tax practitioner who has previously filed [ERC claims].
“My blanket advice is to always talk to a qualified tax professional who has filed [ERC claims] before,” said Craig Hausz, CEO and managing partner of CMH Advisors in Dallas. He is a qualified public accountant as well.
If you received the credit and realized you didn’t qualify, Hausz advised you to begin the repayment procedure. “I think the IRS is going to be a lot more lenient on abating penalties and interest if someone proactively sends money back,” he stated.
While the deadline for 2020 amended returns is nearing, reasonable ERC claims can still be made, according to Kristin Esposito, director of tax policy and advocacy for the American Institute of CPAs. Small firms have until the 2024 tax deadline to revise their 2020 filings.
“If you have a valid claim, I would still go through the calculation and have all your documentation ready,” she stated. “But if it seems too good to be true, it usually is.”
According to Hausz, new ERC claims will not be processed until at least 2024, and filers may not receive the credit until the spring or summer.