What is the Employee Retention Credit?
The Employee Retention Credit, or ERC, was introduced as part of the CARES Act in 2020 to help businesses keep their employees on the payroll during the COVID-19 pandemic. It provided a refundable tax credit for wages paid to employees, offering a much-needed lifeline to companies struggling to stay afloat.
The ERC was a crucial lifeline for businesses like mine during the COVID-19 pandemic, helping us retain employees and sustain operations.
However, the processing of these claims has been anything but smooth.
ERC Claims Processing
Many fraudulent claims increased IRS scrutiny and led to a moratorium in September 2023. In September 2024, the IRS started reducing the backlog after a one-year pause. By October 2024, they processed 400,000 claims, representing approximately $10 billion of ERCs.
However, in the same month, the IRS was sued for prolonged delays, and more lawsuits could pile up. To date, over two dozen refund suits have been filed across the country. The National Taxpayer Advocate submitted a report to Congress on January 16, 2025. The association highlighted it as the number one issue that the IRS needs to address.
Long Delays
Many small business owners have been waiting for their ERC claims to be processed for months, even years. The IRS has faced a significant backlog, with approximately 1.2 million claims pending as of late 2024. This delay has left many businesses in financial limbo, unable to access the funds they desperately need.
Why is there a delay?
So, why are these delays happening? There are a few key reasons. First, the IRS has been dealing with a high volume of claims. Many of the claims require detailed review to prevent fraud. In fact, the IRS has identified a substantial number of improper claims, leading to increased scrutiny and longer processing times. Additionally, resource constraints and the ERC program’s complexity have further slowed the process.
Candies Goode-McCoy is Guilty
On February 14, 2025, a Nevada woman pleaded guilty to conspiring to defraud the United States. She made claims for refunds of false COVID-19-related employment tax credits. According to court documents, Candies Goode-McCoy of Las Vegas conspired with others to file tax returns seeking fraudulent refunds. The refunds were based on the employee retention credit (ERC) and paid sick and family leave credit. From around June 2022 through September 2023, McCoy filed approximately 1,227 false tax returns. The returns were for her businesses and others claiming these refundable credits.
These claims sought refunds of over $98 million, of which the IRS paid approximately $33 million. McCoy received over $1.3 million in fraudulent refunds and was paid about $800,000 from those. She was representing others on whose behalf she filed fraudulent returns. McCoy knew that these returns were fraudulent. Neither she nor the others were eligible to receive the refundable credits in the amounts claimed. McCoy used the proceeds for her benefit, including purchasing luxury cars, gambling at casinos, vacations, and other luxury goods.
IRS Backlog Persists
Despite efforts to accelerate the processing of valid claims, the backlog persists, causing significant distress to businesses awaiting their refunds. The short-staffed IRS may also be affected by the Trump Administration’s shaving down of the federal workforce. This action will cause further delays.
DynaGrace is still waiting, and when our accountant calls the IRS, they say our claim has not been rejected. They state it remains in the queue to get paid.
If you are still waiting for your ERC, monitor the IRS guidance and review the ERC guidelines. Ensure your claim satisfies the requirement to avoid unnecessary delays.
Impact on Small Business
The impact of these delays on small businesses cannot be overstated. Many businesses face cash flow issues, struggling to cover operational costs while waiting for refunds3. For some, this delay could mean the difference between staying open and shutting down. The uncertainty and lack of communication from the IRS have only added to the frustration.
Is there hope?
Despite these challenges, there is hope. The IRS has recently announced efforts to accelerate the processing of valid ERC claims and address the backlog1. However, it’s clear that more needs to be done to support small businesses during this difficult time.
You are not alone
I want to remind our listeners that if they’re experiencing delays with their ERC claims, they’re not alone. Reach out to their local representatives and advocate for the support they need. Together, we can push for the timely resolution of these claims. Ensuring small businesses receive the assistance they deserve.
Listen to the podcast here -> https://govcon-biz.com/2025/02/20/employee-retention-credit-delays/
