Employee retention credit refunds subject to lengthy processing time

The employee retention credit (ERC) was enacted to help businesses meet payrolls during the COVID-19 pandemic. It’s been modified by subsequent legislation and generated multiple pieces of IRS guidance. Most recently, the program has been the subject of frequent questions about the slow turnaround time for ERC refunds. If you filed an ERC refund claim and are wondering when you’ll receive your refund, the short answer is that it’ll likely take an unusually long time for that money to reach your mailbox.

ERC refund timeline slowed by processing of paper returns

Legislative changes allowed many employers to retroactively claim the ERC on amended payroll tax returns, which must be paper-filed and hand-processed by specially trained IRS staff. This resulted in the IRS receiving hundreds of thousands of paper returns claiming ERC refunds at a time when they’re facing the same issues as most employers: lack of qualified staff and safety concerns for those who are needed for this in-person work.

Status of ERC refunds isn’t trackable

While the IRS has made strides in recent years when it comes to online tracking and access to information for taxpayers, those systems don’t provide any information about the processing time for ERC refund claims on amended payroll tax returns. The best information available on the current backlog of these returns can be found on the IRS COVID-19 operations page under the heading, “What You Can Expect: Filed a Tax Return.” Taxpayers have reported waiting anywhere from 10–12 months, and in some cases longer, for their ERC refunds.

Taxpayers have reported waiting anywhere from 10–12 months, and in some cases longer, for their ERC refunds.

The IRS states that taxpayers shouldn’t file second returns claiming the same refund, as that will likely result in even longer delays while the duplicate claims are investigated. The statement describing the backlog also asks that taxpayers not contact the IRS about the status of their returns. Information released by the IRS’s Taxpayer Advocate indicates that phone hold times can be very long and that only a small percentage of those callers are actually able to speak directly with a representative. Even those who make it through to a live person are likely to be stymied by the fact that the status and processing time on these returns is untraceable in most cases.

Don’t give up on the ERC

Despite the bad news on refund timing, employers who are eligible for the ERC should still consider filing an amended payroll tax return to claim the benefit. To learn more about how your business could benefit from the ERC, please contact your Plante Moran advisor.