How Long Are ERC Refunds Taking to Process?

The Employee Retention Credit (ERC) was a refundable tax credit established to encourage businesses to retain employees during the economic challenges of the COVID-19 pandemic. Many businesses that qualified for this credit have since faced significant delays in receiving their refunds, leading to widespread questions about current processing timelines. Understanding the factors influencing ERC claim processing duration is important for businesses awaiting these funds.

Current ERC Refund Processing Timelines

The processing of Employee Retention Credit refunds has evolved. While initially anticipated within weeks or months, the sheer volume of claims and increased IRS scrutiny have extended timelines significantly, leading to waits that can span many months or exceed a year.

The IRS estimates that processing times for amended payroll tax returns, specifically Form 941-X used for ERC claims, can now take nine months or more. As of October 2024, the IRS continued to manage a backlog of approximately 1.2 million ERC claims. Claims submitted before the moratorium on September 14, 2023, are under review, with some processing now underway. Additionally, the IRS announced in August 2024 that it would begin processing claims filed between September 14, 2023, and January 31, 2024, prioritizing those identified as highest and lowest risk.

Claims submitted after January 31, 2024, currently lack a clear processing timeline. The agency processes returns in the order they are received, with smaller refund amounts potentially processed faster than larger, more complex claims. This extended processing period means businesses should manage financial expectations, as the refund process is no longer a quick turnaround.

Reasons for Varied Processing Times

Several factors contribute to the varied processing times for ERC refunds. The immense volume of claims has significantly strained IRS resources, creating a substantial backlog that impacts processing speed. The complex nature of ERC regulations and eligibility criteria also plays a role, as each claim often requires intricate calculations and detailed documentation.

Many ERC claims necessitate manual review by IRS personnel rather than automated processing, which slows the overall timeline. The IRS has intensified efforts to combat fraudulent claims, flagging many submissions for additional scrutiny. This heightened review process involves a tiered system, where larger claims, particularly those exceeding $250,000, undergo more extensive examination, leading to longer delays.

The accuracy and completeness of the initial submission also influence processing times. Errors, omissions, or discrepancies on forms like Form 941-X can trigger significant delays as the IRS may require additional information or initiate a more thorough review. Since Form 941-X is typically a paper form, it requires manual handling and data entry, which is slower than electronic processing. Additionally, IRS staffing levels impact its capacity to process the high volume of claims efficiently.

Monitoring Your ERC Refund Status

Businesses seeking updates on their ERC refund claims face limitations in monitoring their status. Unlike individual income tax refunds, there is no direct “Where’s My Refund?” tool for ERC claims. While the IRS online account or Electronic Federal Tax Payment System (EFTPS) can confirm receipt of electronically filed forms, Form 941-X used for ERC is a paper form, meaning these online portals may not provide specific ERC refund status updates.

The most direct method to inquire about an ERC refund is to contact the IRS directly. Businesses can call the IRS Business and Specialty Tax Line at 800-829-4933 or 877-777-4778. Callers should be prepared for potentially long wait times due to high inquiry volumes. When contacting the IRS, it is important to have specific information readily available, including:
The business name
Employer Identification Number (EIN)
The tax quarter(s) in question
The specific forms submitted (e.g., Form 941-X)
The dates of submission
The expected refund amount

Businesses that utilized a tax professional to prepare and submit their ERC claim can also consult with that professional for status updates. For issues unresolved through standard channels, the Taxpayer Advocate Service, an independent organization within the IRS, may provide assistance.

IRS Actions on ERC Backlog

The IRS has implemented several measures to address the significant backlog of Employee Retention Credit claims and enhance processing efficiency. This includes a moratorium on processing new ERC claims, effective September 14, 2023. This moratorium allowed the agency to focus on combating widespread fraud.

As of August 8, 2024, the IRS announced an adjustment to this moratorium, beginning to process claims filed between September 14, 2023, and January 31, 2024. The focus for these claims is on those deemed highest and lowest risk. The agency has also intensified its efforts to prevent and investigate fraudulent claims, issuing warnings about aggressive promoters and identifying “red flags” that may trigger an audit.

The IRS introduced a withdrawal program, allowing taxpayers to withdraw their claims before payment without incurring penalties. Additionally, a Voluntary Disclosure Program (VDP) was offered, enabling businesses that received improper refunds to repay a percentage of the credit to avoid further audits, penalties, and interest. The IRS continues to issue disallowance letters for claims that do not meet eligibility requirements, and pursues investigations against those involved in fraudulent schemes.