Why Is My ERC Taking So Long? Common Reasons for Delays
Explore the key administrative and procedural factors that may be slowing down your Employee Retention Credit refund process.
Many businesses that applied for the Employee Retention Credit (ERC) are waiting far longer than expected for their refunds. The ERC was intended as pandemic relief, but processing delays have caused frustration and uncertainty among employers.
Understanding the reasons behind these delays can help manage expectations. Several factors contribute, including Internal Revenue Service (IRS) procedures, the way claims are filed, and potential errors in applications.
Why Verification Processes Can Extend Wait Times
A significant reason for delays in receiving ERC refunds is the IRS’s verification process. The credit offered substantial financial relief—a refundable tax credit for qualified wages paid between March 2020 and December 2021—prompting the agency to implement rigorous reviews to confirm eligibility and accuracy.1Internal Revenue Service. Employee Retention Credit
The complexity of ERC rules, which varied by time period, requires careful IRS examination. Eligibility often depended on demonstrating a suspension of operations due to government orders or a significant decline in gross receipts. Verifying these conditions frequently involves manual review of payroll records and financial statements, extending the processing timeline.
The IRS has also expressed concerns about a high volume of potentially ineligible or fraudulent claims, partly fueled by aggressive marketing from third-party firms. This led the agency to increase scrutiny. A Treasury Inspector General for Tax Administration (TIGTA) report in September 2024 noted that the IRS implemented filters and initiatives to identify suspicious claims, preventing potentially erroneous refunds.2Treasury Inspector General for Tax Administration. Management Actions on Erroneous ERC Claims and Remaining Questionable Claims While necessary, this heightened compliance focus means even legitimate claims may undergo more extensive review, contributing to delays.
The sheer volume of ERC claims created an unprecedented workload for the IRS, further slowed by limited agency resources. This combination of complex rules, fraud prevention measures, and resource constraints makes the verification process a primary driver of extended wait times.
Amended Return Complexities
The method required for claiming the ERC is another key factor in processing delays. Because the program was established and modified after many businesses had filed their quarterly employment tax returns (Form 941), most employers had to file an amended return, Form 941-X, Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund.3Internal Revenue Service. Frequently Asked Questions About the Employee Retention Credit
Filing an amended return is inherently more complex and time-consuming for both the taxpayer and the IRS. Form 941-X requires a detailed reconciliation between the original Form 941 and the corrected amounts, including the ERC calculation based on qualified wages and health plan expenses for each specific quarter.
Processing amended returns, especially those claiming large refunds like the ERC, typically involves more manual review compared to electronically filed original returns. While the IRS allows ample time to file Form 941-X (generally three years from the original filing date or two years from tax payment), this means claims arrive over an extended period, often requiring review long after the tax period closed. The manual review needed for accuracy, combined with the massive influx of ERC-related Forms 941-X, created significant backlogs.
Claiming the ERC via Form 941-X also impacts income tax filings. IRS guidance, such as Notice 2021-20, clarifies that the ERC amount reduces the employer’s deductible wage expenses. Businesses claiming the ERC retroactively often needed to amend their corresponding income tax returns (e.g., Form 1120 for corporations, Form 1065 for partnerships) to decrease wage deductions. This link between payroll and income tax filings adds another layer of complexity and potential delay.
Potential Filing Inaccuracies
Errors or omissions within the ERC claim itself frequently contribute to processing delays, potentially halting the review process until corrections are made.
Missing Worksheets
While not always mandatory to submit with Form 941-X, detailed worksheets showing the ERC calculation are often needed for efficient IRS review. These worksheets typically document eligibility determination (like gross receipts tests or government order details) and the computation of qualified wages and health expenses per employee, per quarter. Without this supporting documentation, the IRS reviewer lacks the information to easily verify the claim, often leading to requests for more information and adding significant time to the process.
Incomplete Payroll Data
Accurate and complete payroll data is fundamental to an ERC claim. Delays can occur if submitted records are insufficient, disorganized, or lack detail. The IRS needs clear documentation, like payroll registers, identifying each employee, gross wages per pay period, and the specific qualified wages used for the credit (up to the statutory limits). Records must also substantiate allocated health plan expenses. If the data is unclear or inconsistent, the IRS cannot validate the claim without further inquiry, extending wait times. Taxpayers are generally required to maintain records sufficient to establish the amounts of credits claimed.
Misapplied Credits
Mistakes in applying the intricate ERC rules are another common source of delay. The legislation evolved through multiple acts, creating opportunities for misunderstanding. Common errors include:
- Using the wrong credit percentage (50% for 2020 vs. 70% for 2021).
- Exceeding per-employee qualified wage limits.
- Incorrectly identifying qualified wages (e.g., wages paid to certain majority owners and relatives may be ineligible, as clarified in IRS Notice 2021-49).
- Failing to exclude wages used for Paycheck Protection Program (PPP) loan forgiveness.
When IRS reviewers identify such misapplications, they must adjust the claim, a process that takes time and may involve taxpayer communication, lengthening the wait for any refund.
Updates from Relevant Agencies
The IRS has acknowledged the significant ERC processing delays, citing the massive claim volume, eligibility complexity, and heightened scrutiny due to fraud concerns as primary reasons for the extended timelines and backlogs.
A major development was the IRS’s announcement on September 14, 2023, of an immediate moratorium on processing new ERC claims filed on or after that date.4Internal Revenue Service. IRS Orders Immediate Stop to New ERC Processing This pause, still largely in effect as of early 2025, was deemed necessary to combat aggressive marketing schemes promoting ineligible claims and allow the IRS to enhance review procedures.
For claims submitted before the September 2023 moratorium, the IRS stated processing continues, albeit slowly due to increased compliance checks. In late 2024 and early 2025, the agency indicated progress in reviewing this older inventory, using enhanced analytical tools. IRS Commissioner Danny Werfel mentioned plans to process lower-risk claims, while acknowledging a substantial backlog remained, estimated by the National Taxpayer Advocate at around 1.2 million claims as of October 2024.
To manage questionable claims contributing to the backlog, the IRS introduced specific programs. A claim withdrawal process allows businesses whose claims haven’t been paid to retract their submission without penalty under certain conditions.5Internal Revenue Service. Withdraw an Employee Retention Credit (ERC) Claim The IRS also implemented an ERC Voluntary Disclosure Program (VDP), allowing businesses that received potentially erroneous funds to repay a portion; this program ran intermittently but was closed as of late 2024.6Internal Revenue Service. IRS Reopens Voluntary Disclosure Program for Employee Retention Credit These initiatives reflect ongoing efforts to manage the complex ERC landscape, impacting resources for processing valid claims. Businesses should monitor the official IRS newsroom for current information, as timelines remain lengthy and subject to change.