Small businesses are grappling with a pressing question in 2024: how long will it take the IRS to process their Employee Retention Credit (ERC) claims? The ERC was a crucial lifeline for employers during the COVID-19 pandemic. However, as the new year unfolds, ongoing concerns at the IRS continue to delay ERC processing times.
This article discusses the current reality at the IRS, expectations about ERC delays, and what it means for employers in 2024.
How the IRS ERC Moratorium Is Affecting Processing Times
On September 14, 2023, the IRS declared a moratorium on the approval of new ERC claims. Initially set to last until at least December 31, 2023, the pause remains in effect as of February 15, 2024, with no definite end date announced. Now, businesses face significant delays for both new and existing refunds.
The primary driver behind the ongoing IRS moratorium is the intensified focus on fraud prevention. Before the moratorium, the IRS claimed it could process ERC refunds in as little as three months. Since then, the IRS has introduced an “enhanced compliance review” to identify and address dubious claims, although ERC fraud is relatively rare. As a result of intensified scrutiny, the agency revised its estimated processing time to at least six months.
In reality, employers experienced upwards of 10 to 12 months on average. The IRS’s emphasis on fraud prevention created a shocking backlog of unprocessed claims. According to The National Taxpayer Advocate’s 2023 Annual Report to Congress, the agency had a backlog of almost 1.3 million unprocessed ERC claims entering the new year, a notable increase from 637,000 before the moratorium.
How New Legislation Is Affecting Processing Times
On January 31, 2024, the Tax Relief for American Families and Workers Act of 2024 was passed by the House of Representatives and now awaits the Senate’s vote. If signed into law, this new legislation will retroactively end the ERC program as of January 31, 2024. The bill will also extend the IRS’s assessment period to six years and increase penalties for ERC-related abuse.
The Reality of ERC Processing in 2024
The combination of an amassed backlog, extended reviews, ongoing fraud investigations, and new legislation has set the stage for unprecedented wait times for ERC refunds in 2024. Employers should be prepared for a range of processing times and plan their finances, accordingly, considering these likely delays.
The size of the claim plays a significant role in the processing time. Larger claims may be subjected to more rigorous reviews, potentially stretching the wait time to 14 to 16 months. On the other hand, smaller claims, which may draw less scrutiny, could be processed within a 9- to 12-month window.
Claims filed earlier are expected to face shorter wait times, likely around nine to 10 months, as they are already in the IRS’s queue. However, this is still a marked increase from the initial three-month timeline reported in the pre-moratorium era.
For more recent filings, the wait times could extend even further, perhaps up to 12 to 14 months, given the current processing rate. For example, from mid-August through mid-October 2023, the rate of filing ERC claims was about 45,000 per week, while the IRS could only process around 150 claims per week. If this trend continues, the backlog will grow, causing further delays.
What To Expect as an Employer
Given the unprecedented IRS processing times, an ERC refund is not a reliable source of capital for 2024. Employers must plan for extended wait times and further delays. Remember, the moratorium remains ongoing as the IRS evolves its procedures and guidelines. When the moratorium lifts, do not expect standard processing times to resume. There will still be a significant backlog of unprocessed claims, and estimated wait times remain unclear.
Consider how a late refund could impact your 2024 budget and cash flow projections. It might be necessary to reallocate resources or make adjustments. This could range from eliminating nonessential expenses to renegotiating contracts or discovering ways to optimize cash flow.
If refund delays cause a cash crisis, ERC advanced funding is a viable alternative financing option to bridge financial gaps. Through advanced funding, employers can receive their expected ERC refund upfront and alleviate financial strain due to IRS delays. This option can provide much-needed peace of mind and help businesses maintain operations without significant disruption.
As the IRS continues its focus on fraud prevention, stay informed and be prepared to provide documentation. The IRS could request additional information from you to verify eligibility and claim amounts. Your claim could be delayed further if you do not respond to requests quickly. A proactive approach can help you adapt your plans and avoid complications.
Final Thoughts
The unpredictability of ERC processing times in 2024 underscores the importance of preparing for potential delays. If you cannot afford to wait on the IRS, 1st Capital Financial has solutions that can help. Get an advance on your refund with ERC Bridge Financing. With loan and buyout options, you can access up to 85% of your ERC refund in as little as one to two weeks. Starting your application takes just four minutes, and there is no upfront cost, commitment, or credit impact. You may also contact sales or book a meeting for answers, insights, and recommendations.
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