The IRS has announced that it is resuming the processing of Employee Retention Credit (ERC) applications, which had been paused since September due to concerns over improper claims. Business owners can expect to see their applications processed more quickly now, although there is a higher risk of rejection, particularly for those who submitted through third-party application service providers.
The ERC was established in March 2020 as part of the CARES Act to encourage businesses to retain employees during COVID-19 lockdowns by offsetting labor costs. However, the involvement of external service providers led to a surge in unqualified and fraudulent claims, prompting the IRS to suspend operations to better scrutinize applications.
During this pause, a significant number of claims were found to be irregular or fraudulent. The agency has identified 50,000 valid claims and is now expediting their processing. Despite increased rejections and intensified vetting, the IRS assures that pending applicants should receive updates soon. The final status of the ERC program remains uncertain, as legislative efforts to end it have stalled.