IRS Introduces Supplemental Claim Process to Address Incorrect Employee Retention Credit Claims

Internal Revenue Service (IRS)

WASHINGTON, D.C.— In an effort to streamline the rectification of erroneous Employee Retention Credit (ERC) claims, the Internal Revenue Service (IRS) has launched a supplemental claim process specifically designed for third-party payers. This new process aims to assist both these payers and their clients in resolving inaccuracies in ERC claims, which have been filed in significant numbers due to expansive marketing and complexity associated with the credits.

Third-party payers, entities responsible for managing the payroll and tax reporting duties using their Employer Identification Number, often handle ERC claims for various employers. These payers may now use the supplemental claim process to selectively withdraw claims for clients found to be ineligible for the ERC, while keeping intact the claims of those who qualify.

IRS Commissioner Danny Werfel explained, “The supplemental claim program is a critical step to improve the IRS’s ability to process Employee Retention Credit claims for this more complex segment of taxpayers.” This initiative arises from the need to address the surge in ERC claims, exacerbated by the intricate details of the credit and widespread promotion.

The supplemental claim functions as an adjusted employment tax return, allowing third-party payers to rectify or consolidate claims filed on or before January 31, 2024. By doing so, these claims are treated by the IRS as if they had never been filed, thus enabling corrections without processing prior erroneous submissions. The process is not applicable to common law employers who filed directly using their own Employer Identification Number, nor is it available to third-party payers who have already received the full ERC amount requested.

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To submit a supplemental claim, third-party payers must ensure it pertains to each tax period filed by the January deadline, using the appropriate adjusted employment tax return forms such as Form 941-X or its equivalents. The deadline for submitting these claims is set for November 22, 2024, allowing for digital submission options to facilitate timely processing.

Once submitted, the IRS will examine the supplemental claims to confirm their completeness and accuracy. The outcome can vary, with claims being fully accepted, partially allowed or disallowed, or requiring further examination. By adopting this approach, the IRS replaces previously filed adjusted employment tax returns with the supplemental claim as the definitive document for the tax period in question.

This development represents a significant move by the IRS to enhance the efficiency and accuracy of ERC claim processing. It exemplifies the agency’s efforts to protect against improper claims while aiding small businesses in navigating the complexities of this tax credit. As the IRS continues to refine its methods, the supplemental claim process is poised to play a pivotal role in ensuring that the administration of ERC claims aligns with regulatory expectations and taxpayer needs.

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