IRS Introduces Payout Option for Employee Retention Tax Credit Claims

The IRS announced Thursday a “special disbursement process” for small businesses that may have mistakenly claimed the so-called Employee Retention Tax Credit (ERC).

Created to support small businesses during the Covid-19 pandemic, the ERC is a magnet for fraudulent or “questionable claims,” according to the IRS, worth thousands per eligible employee. Many small businesses were misled by ERC funders, leading the agency to temporarily stop processing new applications in September.

The new payout option allows certain small businesses to withdraw an ERC claim if they have not yet received a refund to avoid future repayments, interest and penalties, the IRS said.

“The aggressive marketing of these programs has hurt well-intentioned businesses and organizations, causing some to reconsider their claims,” said IRS Commissioner Danny Werfel said in a statement. “We want to give these taxpayers a way out.”

More from Personal Finance:
A typical family’s net worth rose 37% during the pandemic, the Fed notes
Here’s who qualifies for the IRS’s free Direct File pilot program in 2024
How open enrollment in Medicare can help you reduce healthcare costs for the next year

“We continue to urge taxpayers to consult with a trusted tax professional, not a marketing company, about this complex tax credit,” Werfel said.

Small businesses can use the ERC claim withdrawal process if they meet the following criteria:

• They applied to the ERC for an amended employment return (Forms 941-X, 943-X, 944-X, CT-1X).
• They simply filed the amended tax return to claim the ERC and made no other changes.
• They intend to withdraw the entire ERC claim.
• Either they did not receive payment for their claim or they received payment but did not cash or deposit the refund check.

Small businesses can learn more about the ERC payout process by visiting IRS.gov/withdrawmyERC.

Don’t miss these CNBC PRO stories: