ERC Moratorium and IRS Compliance Push: What Employers Need to Know

In September 2023, the IRS announced a moratorium on new Employee Retention Credit (ERC) claims in response to a surge of improper filings and aggressive third-party promoters. While the ERC remains a legitimate and valuable tax credit for eligible employers, this pause reflects the IRS’s growing concerns about compliance and fraud.

Where Things Stand Now

• No new claims: The moratorium remains in effect into 2024, with no announced end date.

• Pending claims: The IRS continues to process claims filed before the pause, though reviews are taking longer and undergoing heightened scrutiny.

• Withdrawals: Businesses that filed but now believe their claim may not be valid have the option to withdraw without penalties or interest.

• Voluntary Disclosure Program (VDP): Announced in December 2023, the VDP allows employers that already received improper ERC refunds to repay funds at a reduced cost, avoiding additional penalties.

Why This Matters

The ERC was originally designed to provide relief to businesses that kept employees on payroll during COVID-19 disruptions. However, the IRS has reported a wave of questionable claims filed by pop-up firms and promoters promising “guaranteed refunds” without proper eligibility checks. Employers are ultimately responsible for what is submitted to the IRS in their name—even if a third party prepared the claim.

How Employers Should Respond

• Check your filings: Review your ERC claims with a trusted tax advisor to ensure eligibility and documentation are solid.

• Be cautious of promoters: Avoid firms that make blanket promises, charge large upfront fees, or discourage detailed eligibility reviews.

• Stay informed: The IRS has not indicated when the moratorium will be lifted, so employers should watch for future updates before pursuing new claims.

Bottom Line

The ERC is still a powerful credit for qualifying businesses, but compliance is more critical than ever. With the moratorium still in place and new disclosure programs underway, businesses should proceed carefully, work with reputable advisors, and prioritize documentation to protect themselves.