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The Employee Retention Tax Credit (ERTC) has been a vital lifeline for businesses across the United States, providing much-needed relief amidst the pandemic. However, the high demand for these credits has created a significant IRS backlog, posing challenges for businesses. Innoworks Employment Services has been working diligently to try and get this resolved for our clients, and other PEO’s have also followed suit. In this blog post, we’ll explore the current state of the ERTC IRS backlog, its implications, and how businesses and the government are working together to address the issue.
The ERTC Backlog Crisis
Established under the CARES Act in March 2020, the ERTC program aimed to incentivize employers to retain employees on their payroll during the pandemic. The credit provided a maximum of $5,000 per employee for 2020 and up to $7,000 per employee per quarter in 2021. As businesses faced unprecedented economic challenges, the demand for ERTC credits surged, leading to an overwhelming number of applications. The IRS, already stretched thin due to budget cuts and staffing shortages, has struggled to process the high volume of ERTC claims. As a result, businesses are left waiting to receive their credits, which has added to their financial burden.
Implications for Businesses
The ERTC backlog has had significant repercussions for businesses, especially small and medium-sized enterprises (SMEs). Many SMEs have faced cash flow challenges during the pandemic and relied on the ERTC to stay afloat. Delays in processing the credits have left these businesses in limbo, uncertain about their financial future and ability to retain employees. Moreover, the backlog has created additional administrative burdens for businesses, as they must spend time and resources tracking their ERTC applications, following up with the IRS, and managing their cash flow while they wait for the credit.
Government Efforts to Address the Backlog
In response to the ERTC backlog crisis, the IRS has taken several steps to speed up the processing of claims. First, they have implemented an expedited process for smaller claims, prioritizing businesses that have been most affected by the pandemic. This strategy aims to ensure that the most vulnerable companies receive their credits as quickly as possible.
Second, the IRS has increased its staff and resources dedicated to processing ERTC applications. By allocating more personnel to the task, they hope to accelerate the rate at which claims are reviewed and approved. In addition to the IRS’s efforts, Congress has been urged to provide further funding and resources to the agency to help address the backlog. By boosting the IRS’s budget, lawmakers can ensure that the agency has the means to tackle the ERTC bottleneck more effectively.
What Businesses Can Do
In a recent update on the status of ERTC applications for its members, The National Association of Professional Employer Organizations, or NAPEO, wrote that it has been working hard to try and clear up this logjam, from sending letters to the Treasury Secretary and the IRS Commissioner, while also encouraging all PEOs to send letters to your congressional representatives and senators. Because of these efforts, NAPEO informed members via email that ten members of the Ways and Means Committee have written a letter to the IRS Commissioner seeking answers. While the government works to address the backlog, businesses can take several steps to ensure their ERTC applications are processed as smoothly as possible:
- Double-check your application: Ensuring that your application is complete and accurate can help prevent delays due to errors or missing information. Verify that you have provided all required documentation and followed the IRS’s guidelines for claiming the ERTC credit.
- Stay informed: Keep up to date with the latest news and updates regarding the ERTC program. Changes to the program or new guidance from the IRS may affect your application or eligibility for the credit.
- Consult with professionals: Working with a tax professional or accountant can help you navigate the complex ERTC application process and maximize your chances of receiving the credit in a timely manner.
The ERTC backlog has created significant challenges for businesses and the IRS alike. However, with concerted efforts from the government and businesses following best practices, there is hope that the backlog will be reduced, and companies will receive the support they need to recover from the pandemic’s economic impact.
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