On September 26, the IRS announced a new supplemental claim process designed to assist payroll companies, third-party payers, and their clients in rectifying incorrect claims for the Employee Retention Credit (ERC). This initiative comes on the heels of the IRS reopening its ERC voluntary disclosure program, which allows businesses that mistakenly claimed the tax credit to voluntarily repay 85% without facing penalties, interest, or audit concerns.
What’s Behind the Change?
The IRS’s announcement highlights an increasing complexity in the ERC claims process, particularly for third-party payers who handle federal employment taxes for multiple clients. Many of these payers filed ERC claims on behalf of various businesses, but clients may later discover they were ineligible for the credit. To streamline the correction process, the IRS is now allowing these third-party payers to “withdraw” claims for clients that did not qualify while keeping claims for those that did.
A Statement from the IRS Commissioner
IRS Commissioner Danny Werfel emphasized the importance of this supplemental claim program, stating, “This is a critical step to improve the IRS’s ability to process Employee Retention Credit claims for this more complex segment of taxpayers.” He noted ongoing efforts to assist small businesses and prevent improper claims, particularly as the number of claims surged due to aggressive marketing strategies.
How the Supplemental Claim Process Works
The supplemental claim is an adjusted employment tax return that enables third-party payers to correct or consolidate previous claims filed on or before January 31, 2024, as long as those claims haven’t yet been processed. By submitting a supplemental claim, third-party payers can request that the IRS not process any outstanding adjusted employment tax returns for the relevant tax period. The IRS will regard claims submitted prior to the supplemental claim as if they were never filed.
Who Can Use the Supplemental Claim Process?
The supplemental claim process is specifically for third-party payers that:
- Have filed one or more ERC claims using their own employer identification number for themselves and/or clients.
- Made the claim on an adjusted employment tax return (e.g., forms 941-X, 943-X, 944-X, or CT-1X).
- Have not had any of these claims processed by the IRS.
Note: This process does not apply to common law employers who filed their own adjusted employment tax returns or third-party payers who received the full ERC amount claimed.
Preparing Your Supplemental Claim
Each third-party payer must prepare a separate supplemental claim for each tax period filed by January 31, 2024. The claim must accurately reflect the correct ERC amount and any necessary corrections. The IRS specifies that amounts filed after January 31, 2024, should not be included.
Claims can be submitted via computer or mobile device, with a deadline set for November 22, 2024, at 11:59 p.m.
What Happens Next?
Once submitted, the IRS will review the supplemental claim to ensure it contains all necessary items for processing. Depending on the review, claims may be accepted, partially allowed or disallowed, or flagged for additional examination.
Ultimately, the supplemental claim will serve as the sole adjusted employment tax return for the tax period, replacing any prior submissions.
Learn More
For more detailed information, including FAQs, visit the IRS resources on filing a supplemental claim for the Employee Retention Credit. This new process aims to simplify the path forward for businesses navigating the complexities of ERC claims and corrections.