The Internal Revenue Service has been working to clear a backlog that has left employers waiting as much as six to 10 months to process claims for the Employee Retention Tax Credit (ERTC), a measure designed to keep workers on the payroll during the pandemic.
The ERTC was passed by Congress in 2020 as a companion to the Paycheck Protection Program [PPP], as a way to help small businesses affected by COVID-19 to hold onto their W-2 employees.
The Government Accounting Office (GAO) found that the IRS had begun missing its statutory 90-day deadline for handling claims in September 2020, and continued to miss it through 2020.
Forbes reported that the IRS entered the current tax season “severely backlogged and shorthanded” because of the pandemic. The agency was further “overwhelmed by all the Covid relief Congress doled out through the tax code,” Nina E. Olson, a tax lawyer and the founder and executive director of the Center for Taxpayer Rights, told the magazine.
IRS Commissioner Charles Rettig has told members of the House that the agency will process its backlog of unprocessed work — some of which dates back to 2020 — by the end of 2022, according to the Journal of Accountancy. When asked directly about ERTC, Rettig offered no details, the publication reported.
Acting Committee Chair Rep. Judy Chu, D-Calif., acting House Ways and Means Committee’s Subcommittee on Oversight noted the IRS’s recent implementation of “surge teams” of employees reassigned to its accounts management and submission processing functions and asked Rettig directly whether the backlog would be cleared by December.
“Absolutely before December,” Rettig replied. “As of today, barring any unforeseen circumstances — COVID, etc., etc. — but if the world stays as it is today, we will be what we call ‘healthy’ by the end of calendar year ’22 and enter the ’23 filing season with normal inventories.”
The delays and changes in federal policies are forcing employers trying to claim the employee-retention tax credit to “dig deeper into reserves and slowing their recovery,” a Wall Street Journal report found.
The CEO of The Aureus Group, the owner of three collision repair shops in the Philadelphia area, told the Journal that the company has received a partial $180,000 ERTC refund, but is waiting for more for both 2021 and 2021.
CEO Thomas Bemiller told the WSJ that Aureus incurred credit card debt and other bills to keep the business going during the pandemic. “When the money showed up, it was a little bit of a surprise,” he said. “Because it took so long, I wasn’t waiting on it every day.”
Repairer Driven News asked Brad Mewes, chief financial officer of The Mewes Group, what advice he would offer body shops that have filed claims for the tax credit, or are considering doing so.
“Make sure as a client you understand the process. We have a specific three-step process we go through with every client that we outline at the beginning of every job,” Mewes said. “Don’t pay the entire fee up front (we work on a contingency basis). As a result we’ve created a process that gets these in cue at the IRS within days rather than weeks or months. And seek out specific experience with these credits.”
Also, “Don’t assume your accountant has this covered,” Mewes said. Filing a claim requires a thorough understanding of payroll tax, rather than income tax, and a familiarity with hundreds of pages of IRS documentation on PPP and ERTC and how the programs interact.
Those who have filed and are waiting for payment might want to get a second opinion, he suggested. “Many of our clients tell us either their accountant said they didn’t qualify, or they filed for a few thousand when they should have filed hundreds of thousands (or millions) because their accountant didn’t read the hundreds of pages of guidance on the credits. Or worse, they file incorrectly, for the wrong periods, or are missing critical documentation,” he said.
It’s important to hire a firm that can do legal research, Mewes said. “We’ve filed for hundreds of companies, many in the auto body business – many of whom increased sales during the pandemic.”
Finally, don’t delay. “Congress already retroactively repealed portions of the credit.” he said. The National Federation of Independent Businesses makes it easy for shops to contact their representatives and ask them to extend the credits to the end of 2021, as originally intended. For more, visit https://www.votervoice.net/mobile/NFIB/campaigns/89552/respond.
IRS employer tax credits page
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