The IRS Extends Third-Party Claim Deadline to Resolve Improper Employee Retention Credit Claims
The IRS recently concluded the Second Employee Retention Credit (ERC) Voluntary Disclosure Program (ERC-VDP) on November 22, 2024, allowing businesses to address improper ERC claims for 2021 without penalties or interest. While businesses can no longer apply directly, third-party payers, including payroll providers and tax preparers, have until December 31, 2024, to assist their clients in correcting these claims. The extension provides a crucial opportunity for third-party payers to utilize the Consolidated Claim Process for efficient claim corrections.
Here’s what you need to know about the extended deadlines and how the Consolidated Claim Process simplifies resolving improper ERC claims.
What is the Employee Retention Credit (ERC)?
The ERC was introduced in 2020 under the CARES Act to support businesses that retained employees during the COVID-19 pandemic. Eligible employers could claim a refundable tax credit based on wages paid during specific periods in 2020 and 2021.
However, due to complex eligibility requirements or improper marketing, some businesses mistakenly claimed the credit. The ERC-VDP offered businesses the chance to voluntarily repay ineligible claims without penalties. Now, with the program closed for direct business applications, third-party payers can step in to resolve outstanding issues on behalf of their clients.
The Role of Third-Party Payers and the Consolidated Claim Process
Extended Deadline for Third-Party Payers
The IRS acknowledges that many businesses relied on third-party payers, such as payroll companies and tax professionals, to claim the ERC. These entities now have until December 31, 2024, to resolve improper claims made on behalf of their clients.
Consolidated Claim Process
The Consolidated Claim Process is a streamlined method introduced by the IRS to help third-party payers efficiently correct multiple improper ERC claims for their clients.
Key features include:
- Simplified Adjustments: Third-party payers can submit corrections for multiple clients in a single consolidated filing, reducing paperwork and administrative burden.
- Faster Resolutions: By grouping claims, the process ensures quicker handling and fewer delays in rectifying errors.
- Minimized Penalties: Correcting improper claims through this process before the deadline can help businesses and their third-party payers avoid penalties and additional interest.
- Enhanced Compliance: The process supports better adherence to IRS regulations, reducing future risks of audits or enforcement actions.
Third-party payers using the Consolidated Claim Process can work closely with their clients to gather necessary documentation and address ineligible claims efficiently.
Additional Option: Claim Withdrawal Program
Businesses whose ERC claims have not yet been processed may consider the Claim Withdrawal Program as an alternative. Under this program:
- The IRS will treat the claim as if it was never filed.
- No penalties or interest will apply.
- This option is available only for claims that have not been paid or deposited.
For businesses unable to participate in the second ERC-VDP or correct claims through third-party payers, the Claim Withdrawal Program provides another opportunity to resolve improper claims.
Why This Matters
For third-party payers, the extended deadline and the Consolidated Claim Process provide a practical way to correct ERC claims efficiently, ensuring compliance with IRS regulations and reducing the risk of penalties for clients. Businesses that relied on third parties to file their ERC claims should immediately contact their providers to take advantage of these corrective measures.
Final Thoughts
The IRS’s extended deadline for third-party payers until December 31, 2024, is a vital opportunity to address improper ERC claims through the Consolidated Claim Process. This method allows for streamlined adjustments, helping both businesses and their service providers efficiently resolve issues while avoiding penalties.
Businesses should act swiftly, consulting with tax professionals or their payroll providers to ensure compliance. Timely corrections can protect organizations from potential enforcement actions and ensure peace of mind moving forward.
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