IRS Backlog Leads to Potential Delay in the ERC Tax Credit

July 19, 2023
Dayes Law Firm

The government promised business owners financial relief to help them keep their companies afloat after the COVID-19 pandemic. Unfortunately, a delay in the ERC tax credit has jeopardized many businesses. What caused this delay, and how soon can employers expect to see their credits? The attorneys at Dayes Law Firm PC can break down the facts for you.

Understanding the ERC

The Employee Retention Tax Credit — often shortened to ERTC or ERC — aimed to help employers reduce the strain of the pandemic. A company could claim a certain percentage of wages for each employee they retained, provided they met one of the following qualifications:

  • They experienced a significant decline in gross receipts.
  • They experienced a full or partial suspension.
  • They qualified as a recovery startup business.

A business can file a claim through the amended Form 941-X if it meets these qualifications. Theoretically, the IRS would process this form, then provide eligible employers with financial relief. The initial intent was to provide business owners with this relief before significant harm occurred.

Unfortunately, this often hasn’t been the case. The IRS currently has hundreds of thousands of applications left to process, leaving many business owners to wonder whether they’ll ever see the relief the government promised.

What Caused the Backlog?

The IRS isn’t struggling with just a backlog of ERC requests; they also have a large backlog of standard business tax returns, which has stalled their ability to process Form 941-X applications. Part of the problem is a lack of human resources; without enough properly trained staff, they can’t sort through the forms quickly enough.

This staff shortage causes more than just delays; it can also lead to significant errors in judgment. The IRS erroneously suspended many claims, which means they must be re-reviewed to determine eligibility.

In addition to staff shortages, the IRS didn’t start processing these forms immediately after implementing them; it took 12 months to begin processing the forms and eight months to prioritize the examining of suspended claims.

Unfortunately, the very nature of Form 941-X can also cause delays. Form 941-X is a paper form with no electronic counterpart; paper forms take longer to process, contributing to the backlog.

Hope for the Future

The delay in the ERC tax credit has significantly impacted many businesses. Without it, some companies have had to reduce their staff or cease operations entirely.

However, the IRS has started to make some progress. In April, the IRS had a backlog of over 900,000 unprocessed forms; as of May 2023, that number has dropped to approximately 740,000. In addition, IRS Commissioner Werfel stated that, with the filing season over, the IRS could approximately double the forms they process in a week.

The IRS also recently received significant funding. This will allow them to hire and train staff, update technology, and turn paper forms into electronic ones over the next ten years.

Reach Out to Dayes Law Firm PC To Request Assistance With the ERC

While the delay in the ERC tax credit has caused significant problems for many businesses still struggling to gain a foothold in a recovering market, there’s hope that the IRS can decrease its backlog. If you’re still concerned about your financial aid, however, reach out to Dayes Law Firm PC. We will help you understand the backlog, determine eligibility for the ERC, and assist with filing your claim.

Learn more about the state of the ERC tax credit delay and request additional assistance; call (866) 257-1223 or fill out our contact form to request a free consultation. We’re ready to assist you today.