How Long Does It Take to Receive an ERC Refund?

The Employee Retention Credit (ERC) provided eligible businesses with a refundable tax credit for retaining employees during the COVID-19 pandemic. This credit served as a financial lifeline for many employers. Understanding the timeline for receiving an ERC refund is important for businesses. This article explores the typical refund process and what applicants can expect.

Factors Influencing Processing Times

The Internal Revenue Service (IRS) faces a substantial workload and backlog of Employee Retention Credit claims, which extends processing times. As of July 2024, the IRS had approximately 1.4 million unprocessed ERC claims. While the IRS is making progress, it could take until the end of 2025 to process all claims.

The IRS implemented a moratorium on processing new ERC claims filed after September 14, 2023, to address the overwhelming volume and concerns about improper claims. The agency has begun processing some claims filed during the moratorium, prioritizing those deemed low-risk or high-risk for review. This approach aims to manage the extensive queue of applications.

The accuracy and completeness of submitted forms play a role in determining processing speed. Errors, omissions, or inconsistencies on Form 941-X, Amended Employer’s Quarterly Federal Tax Return or Claim for Refund, can lead to delays. Common issues include incorrect calculations, missing signatures, or insufficient supporting documentation.

The method of submission also impacts the processing timeline. Form 941-X can now be electronically filed through the Modernized e-File (MeF) system, effective July 1, 2024, for tax year 2024 corrections. Historically, these forms were paper-filed, contributing to a backlog. Electronic submissions offer a faster processing route compared to traditional paper filings.

Some ERC claims are selected for review or audit, which can add time to the refund process. The IRS is increasing scrutiny due to concerns about fraud and abuse within the program. An audit verifies eligibility criteria, such as a decline in gross receipts or government-mandated operational suspensions, and confirms the accuracy of claimed amounts.

During an audit, the IRS may request additional documentation, including payroll records and revenue reports. Failure to respond promptly or provide adequate information can result in the denial of the credit. The IRS has a five-year period to audit ERC claims, starting from the later of the original return filing date or its deemed filing date.

The specific tax year for which the ERC was claimed can influence processing. The deadlines for filing Form 941-X for ERC were April 15, 2024, for 2020 claims and April 15, 2025, for 2021 claims. The agency has implemented programs like withdrawal options for taxpayers who realize their claims may be questionable.

Tracking Your Refund Status

After submitting an ERC refund claim, businesses can monitor its status through official IRS channels. The IRS “Where’s My Amended Return?” (WMAR) online tool is a resource for checking the status of amended returns, including Form 941-X. This tool provides status updates approximately three weeks after submission.

To use the WMAR tool, you will need your Employer Identification Number (EIN), the relevant tax period, and the form type. The tool can show various statuses, such as “received,” “adjusted,” or “completed.” It is accessible 24 hours a day, with brief downtime for maintenance on Monday and occasional Sunday mornings.

Directly contacting the IRS is another option for status inquiries. The IRS Business and Specialty Tax Line, at 800-829-4933, handles questions related to business tax returns. This line operates Monday through Friday, from 7 AM to 7 PM local time.

When calling, have your EIN and a copy of your submitted tax return information readily available to facilitate the inquiry. Callers should anticipate wait times, particularly during peak tax seasons. While the IRS can confirm receipt of amended payroll tax returns, they may not always provide specific timelines for check issuance.

Consulting with a tax professional who assisted with the ERC claim can be beneficial. These professionals may have insights into the process or direct communication channels with the IRS. They can request formal transcripts from the IRS, which detail activity on a taxpayer’s account and may offer a comprehensive overview of the claim’s progress.

Addressing Refund Delays

If an ERC refund is taking longer than anticipated, proactive steps can help address the delay. Businesses should confirm receipt and processing by checking for any correspondence from the IRS. The IRS may send letters or notices indicating an issue with the claim or requesting additional information.

Letters such as Letter 105-C indicate a full disallowance of the ERC claim, while Letter 6577C signals a partial disallowance or a proposed adjustment, often referred to as a “clawback.” Promptly responding to these notices and providing any requested documentation is important to prevent further delays or claim denial.

Reviewing the original submitted claim for any errors that might have been overlooked can be productive. Even minor inaccuracies on Form 941-X can contribute to processing delays. Ensuring all calculations were correct and supporting documentation was complete can help identify reasons for a holdup.

If the “Where’s My Amended Return?” tool and direct phone calls to the IRS have not yielded sufficient information or progress, submit further inquiries. Maintaining detailed records of all communications with the IRS, including dates and representative names, is advisable.

For delays or unresolved issues, the Taxpayer Advocate Service (TAS) can provide assistance. TAS is an independent organization within the IRS dedicated to helping taxpayers resolve problems they have been unable to address through normal IRS channels. They can intervene when a claim has been in processing for more than six months or if the delay causes financial hardship for the business. Contacting TAS can help expedite the claim resolution process.

The IRS may pay interest on refunds delayed beyond a certain period. If a refund is not issued within 45 days from the later of the tax filing deadline or the date the return was filed, interest may accrue. The interest rate is adjusted quarterly and is tied to the federal short-term interest rate plus three percentage points, compounded daily. Any interest received from the IRS on a delayed refund is considered taxable income and must be reported.