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IRS ERC Disallowance Notices: What You Need to Know

The IRS has announced a significant development regarding the Employee Retention Credit (ERC). If you or your business filed an ERC claim, you may receive a disallowance notice or a request for repayment. The IRS is issuing these notices automatically or based on a preliminary calculation that may not fully account for the complexities of the program’s rules. With 840,000 to 980,000 notices expected to be sent in the coming months, here’s what you need to know.

What’s Happening?

The IRS initially projected the ERC program to pay out $77 billion; however, over $230 billion has already been distributed. Additionally, 1.4 million claims remain pending. Of these, 60–70% are expected to receive additional scrutiny or notices.

Using time during the recent moratorium, the IRS digitized its ERC claims process and is now sending automated disallowance notices, including:

Notice 105C
Notice 106C
Notice 6577

Expect waves of 30,000 to 40,000 disallowance notices every 4–8 weeks, affecting both partial and full claims. These notices require swift action as response deadlines are often short—ranging from 15 days to a few weeks.

IRS Investigations and Audits

The IRS is also […]

By Linkenheimer LLP|2024-12-06T04:27:53+00:00December 6th, 2024|irs|0 Comments

Infrastructure Law Sunsets Employee Retention Credit Early

The Employee Retention Credit (ERC) was a valuable tax credit that helped employers survive the COVID-19 pandemic. A new law has retroactively terminated it before it was scheduled to end. It now only applies through September 30, 2021 (rather than through December 31, 2021) — unless the employer is a “recovery startup business.”

The Infrastructure Investment and Jobs Act, which was signed by President Biden on November 15, doesn’t have many tax provisions but this one is important for some businesses.

If you anticipated receiving the ERC based on payroll taxes after September 30 and retained payroll taxes, consult with us to determine how and when to repay those taxes and address any other compliance issues.

The American Institute of Certified Public Accountants (AICPA) is asking Congress to direct the IRS to waive payroll tax penalties imposed as a result of the ERC sunsetting. Some employers may face penalties because they retained payroll taxes believing they would receive the credit. Affected businesses will need to pay back the payroll taxes they retained for wages paid after September 30, the AICPA explained. Those employers may also be subject to a 10% penalty for failure to deposit payroll taxes withheld from employees […]

By Linkenheimer LLP|2021-11-30T22:54:37+00:00November 30th, 2021|credit, employer|0 Comments

New COVID-19 Relief Law Extends Employee Retention Credit

Many businesses have retained employees during the COVID-19 pandemic and enjoyed tax relief with the help of the employee retention credit (ERC). The recent signing of the American Rescue Plan Act (ARPA) brings good news: the ERC has been extended yet again.

The original credit

As originally introduced under last year’s CARES Act, the ERC was a refundable tax credit against certain employment taxes equal to 50% of qualified wages, up to $10,000, that an eligible employer paid to employees after March 12, 2020, and before January 1, 2021. An employer could qualify for the ERC if, in 2020, there was a:

Full or partial suspension of operations during any calendar quarter because of governmental orders limiting commerce, travel or group meetings because of COVID-19, or
Significant decline in gross receipts (less than 50% for the same calendar quarter in 2019).

The definition of “qualified wages” depends on staff size. If an employer averaged more than 100 full-time employees during 2019, qualified wages are generally those paid to employees who aren’t providing services because operations were suspended or due to the decline in gross receipts. Qualified wages may include certain health care costs and are […]

By Linkenheimer LLP|2021-03-17T23:03:46+00:00March 17th, 2021|business, covid-19, credit, employer, New Tax Laws, tax credit|0 Comments

Business Highlights in the New American Rescue Plan Act

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President Biden signed the $1.9 trillion American Rescue Plan Act (ARPA) on March 11. While the new law is best known for the provisions providing relief to individuals, there are also several tax breaks and financial benefits for businesses.

Here are some of the tax highlights of the ARPA.

The Employee Retention Credit (ERC). This valuable tax credit is extended from June 30 until December 31, 2021. The ARPA continues the ERC rate of credit at 70% for this extended period of time. It also continues to allow for up to $10,000 in qualified wages for any calendar quarter. Taking into account the Consolidated Appropriations Act extension and the ARPA extension, this means an employer can potentially have up to $40,000 in qualified wages per employee through 2021.

Employer-Provided Dependent Care Assistance. In general, an eligible employee’s gross income doesn’t include amounts paid or incurred by an employer for dependent care assistance provided […]

By Linkenheimer LLP|2021-03-16T16:32:05+00:00March 16th, 2021|covid-19, credit, New Tax Laws|0 Comments