Employee Retention Credit: How Long to Get a Refund?

The Employee Retention Credit (ERC) provided a refundable payroll tax credit for businesses facing economic challenges. Many qualified businesses have submitted claims, often using an amended employment tax return, Form 941-X. A common question among claimants concerns the refund process duration. Understanding the journey an ERC claim takes through the Internal Revenue Service (IRS) is important for managing payment expectations.

The IRS Refund Processing Stages

When an employer submits an ERC claim, typically using Form 941-X, it undergoes a multi-stage process within the IRS. The initial step involves the physical receipt and scanning of the paper form. This intake process varies in speed depending on the volume of mail received by the agency.

Following intake, the claim undergoes automated compliance checks. This review scans for errors or discrepancies that could prevent immediate processing. If the claim passes these checks, it moves to a more detailed examination, which may involve a manual review by an IRS agent if certain triggers are met, such as large refund amounts or unusual claim patterns.

During this review, the IRS verifies the employer’s eligibility and the accuracy of the claimed credit. This may lead to requests for additional documentation or information from the taxpayer. Once verified and approved, the IRS processes the refund, which proceeds to the Department of the Treasury for issuance.

Current ERC Refund Timelines

The timeline for receiving an ERC refund has fluctuated due to the substantial volume of claims and increased IRS scrutiny. While the IRS previously aimed for processing within a few months, current estimates suggest a longer wait. Businesses should anticipate a minimum wait of six to eight months from the date the IRS receives the amended return.

Many businesses are experiencing delays, with some waiting 12 months or more for refunds. The IRS announced in August 2024 an end to its moratorium on processing new ERC claims filed between September 14, 2023, and January 31, 2024. The agency will prioritize processing high-risk and low-risk claims within this group.

The IRS indicated plans to issue payments for low-risk claims, with some beginning in September 2024 and more anticipated in the fall. Claims filed after January 31, 2024, are still subject to processing delays, pending potential legislative changes. The resolution of all outstanding ERC claims may extend over many months.

Reasons for ERC Refund Delays

Extended processing times for Employee Retention Credit refunds stem from several factors. The primary reason is the sheer volume of claims, creating a substantial IRS backlog. In August 2024, the IRS had nearly 1.4 million unprocessed ERC claims. This high demand slows the review process for each claim.

Increased scrutiny due to concerns about fraudulent or improper filings is another factor. The IRS identified “red flags” in many applications, leading to thorough reviews and compliance initiatives. Errors or omissions on Form 941-X, such as incorrect calculations or missing information, can also trigger manual reviews and prolong processing. These discrepancies require additional verification by IRS personnel, adding to the delay.

Certain claims may be flagged for manual review if they involve unusually large refund amounts or deviate from typical filing patterns. The IRS may also initiate audits or request additional information, pausing the refund process until details are provided and verified. These compliance efforts, while necessary for program integrity, extend the waiting period for claimants.

Monitoring Your ERC Refund Status

Businesses awaiting an ERC refund can monitor their claim status. The primary method for checking an amended employment tax return like Form 941-X is by directly contacting the IRS. Taxpayers can call the IRS Business and Specialty Tax Line at 800-829-4933 to inquire about their refund. Have pertinent business information available, such as the Employer Identification Number (EIN) and details from Form 941-X.

While the “Where’s My Refund?” tool is commonly used for individual income tax returns, it does not provide status updates for amended business returns. Direct communication with the IRS is the most effective approach for ERC claims. Consulting with a tax professional who assisted with the claim can also be beneficial, as they may have insights into processing patterns or make inquiries on your behalf. Consistent follow-up can help ensure the claim remains on track.

Actions for Delayed ERC Refunds

If an ERC refund is delayed beyond typical processing times, businesses have several avenues. A first step involves re-contacting the IRS Business and Specialty Tax Line to determine if specific issues are holding up the claim. Confirm that no additional information or documentation has been requested by the IRS that might have been overlooked.

For cases involving undue hardship or delays beyond published estimates, taxpayers may consider contacting the Taxpayer Advocate Service (TAS). The TAS is an independent IRS organization that helps taxpayers resolve problems they have been unable to resolve through normal channels. They can assist when an IRS process is not working as it should, causing significant delays or financial difficulties.

Working with a tax professional can be beneficial. They can help review the original submission for potential errors and guide the process of escalating the issue. They can assist in preparing formal inquiries or responses to IRS correspondence. Maintaining thorough records of all submitted forms, communications with the IRS, and supporting documentation is important when addressing a delayed refund.