As a small business owner, staying on top of tax credits and understanding the latest IRS updates can make a significant difference to your bottom line. One of the key tax credits introduced during the COVID-19 pandemic was the Employee Retention Tax Credit (ERTC). While many businesses have already received their ERTC payments, there are still ongoing developments that could impact your claims and tax filings.
Here’s what you need to know about the latest IRS updates on the ERTC and how they might affect your business.
What is the Employee Retention Tax Credit (ERTC)?
The ERTC was introduced as part of the CARES Act to encourage businesses to keep employees on their payroll during the challenging times of the COVID-19 pandemic. It provides eligible businesses with a refundable tax credit for a percentage of wages paid to employees. The credit applies to wages paid after March 12, 2020, and before January 1, 2022, with specific rules depending on the time period.
The IRS’s Latest Updates on ERTC Processing
In recent months, the IRS has provided new guidance on how they are handling ERTC claims. The key points include:
- Categorization of ERTC Claims:
- The IRS has divided ERTC claims into three categories: low risk, high risk, and higher than acceptable risk. These categories determine how quickly your claim will be processed or if further scrutiny is required.
- Low Risk Category:
- Claims deemed low risk, which are typically straightforward or involve smaller amounts, are being processed more quickly. Some payments have already been made, with additional rounds expected in the coming months.
- High Risk Category:
- High-risk claims, often involving larger sums or more complex situations, may face delays. The IRS is contacting businesses in this category directly, and in some cases, claims may be subject to further investigation.
- Higher Than Acceptable Risk Category:
- The majority of claims fall into this category, meaning they require additional review before being processed. Unfortunately, this means that many businesses will continue to experience delays in receiving their ERTC payments.
What Should You Do if You’re Waiting on ERTC Money?
If your business is still waiting for ERTC funds, or if you’ve only received a partial payment, there are several steps you can take:
- Stay Informed: Keep up to date with IRS announcements and any correspondence related to your ERTC claim. Understanding which risk category your claim falls into can give you a better idea of what to expect.
- Tax Filing Considerations: If you’ve received ERTC funds but haven’t yet amended your 2020 or 2021 tax returns to reflect this income, it’s crucial to do so. The IRS requires businesses to report the ERTC as taxable income by reducing the deduction for wages paid in the corresponding years. Failing to do this could result in penalties or additional scrutiny from the IRS.
- Consult Your Accountant: If you’re unsure about how to proceed, or if your ERTC claim is still in limbo, reach out to your accountant for advice. They can guide you on the best course of action, including whether to amend your tax returns now or wait until all ERTC funds have been received.
The Bottom Line
The ERTC has been a valuable lifeline for many small businesses, but the ongoing processing delays and IRS scrutiny can be frustrating. By staying informed and proactive, you can ensure that your business remains compliant and that you maximize the benefits of this important tax credit.
If you have any questions or need assistance with your ERTC claim or tax filings, don’t hesitate to contact us. We’re here to help you navigate these complex issues and keep your business on solid financial ground.
info@paarmelis.com