Employee Retention Credit Repayment Option for Businesses

By John T. Murray, CPA, Partner

Employee Retention Credit Repayment Option for Businesses

The Employee Retention Credit (ERC) is a complex tax credit for businesses and tax-exempt organizations that continued paying employees during the COVID-19 pandemic because their operations were either: 1) fully or partially shut down because of a federal, state or local government order, or 2) when they had a “significant decline” in gross receipts during certain eligibility periods in 2020 and 2021.

The ERC opportunity prompted aggressive marketing tactics from bad actors known as credit mills that lured ineligible taxpayers to claim the credit. In response, the Internal Revenue Service (IRS) rolled out initiatives to assist businesses that have been misled by the promotors or claimed the credit in error. The initiatives include letters notifying taxpayers that their claims are not allowed, an ERC claim withdrawal option, a moratorium on processing of new ERC claims, and most recently, the ERC Voluntary Disclosure Program.

Overview of the New ERC Voluntary Disclosure Program

On December 21, 2023, the IRS launched a new Employee Retention Credit Voluntary Disclosure Program (ERC-VDP) to help employers who received ERCs, but are in fact ineligible and need to return the ERC proceeds. The ERC-VDP is only available for a limited time. The deadline for applications is 11:59pm on March 22, 2024.

Qualifications and Requirements for the ERC-VDP

Businesses, tax-exempt organizations, and government entities are eligible to apply for the ERC-VDP for each tax period that meets all of the following requirements.

  • Your business’s ERC was claimed on an employment tax return and was processed and paid as a refund, which has been cashed or deposited, or paid in the form of a credit applied to the tax period or another tax period.
  • Your business now feels it was not entitled to the claim the ERC.
  • Your business is not under employment tax examination (audit) by the IRS
  • Your business is not under criminal investigation by the IRS.
  • The IRS has not reversed or notified your business of intent to reverse your ERC to $0. For example, you received a letter or notice from the IRS disallowing your ERC.
  • More eligibility details can be found on the IRS website.

ERC Voluntary Disclosure Program Application

If your business meets the eligibility requirements referenced above, the next step is to submit an application.

  1. Complete Form 15434, Application for Employee Retention Credit Voluntary Disclosure Program.
  2. Complete Form SS-10, if your application includes tax periods ending in 2020
  3. Ensure an authorized person signs the ERC-DVP application and Form SS-10, if applicable.
  4. Submit your application using the IRS Document Upload Tool by 11:59p.m. on March 22, 2024

If the application is approved, participants of the program will also be required to:

  • Cooperate with any requests from the IRS for information. For example, assist IRS with gathering information on bad actors.
  • Voluntary pay back the ERC, minus 20%
  • Sign a closing agreement

For full details on what to include in the application and how to prepare it, refer to the IRS website.

Note: If your business used a third-party payer (also known as PEO or CPEO) to file your employment tax returns or claim your ERC, your business can’t apply to the ERC-VDP. The third-party payer needs to apply on your behalf.

ERC-VDP Benefits

If you received the ERC but weren’t entitled to it and now want to pay the money back, there are several benefits in applying to the program, including:

  • Repay only 80% of the ERC that the business received as a credit on its return or as a refund.
  • No requirement to repay any interest received on the ERC refund.
  • The business does not need to amend income tax returns to reduce wage expense.
  • The 20% reduction is not taxable as income.
  • The IRS will not charge penalties or interest on the claimed ERC amount if it is paid in full (claimed ERC minus 20%) by the time you return your signed closing agreement to IRS.
  • The IRS won’t examine ERC on your employment tax return for tax period(s) resolved within the terms of ERC-VDP.

We will continue to provide information on new or changing ERC regulations that may impact you and your business.

Contact your Keiter Opportunity Advisor with any questions or to discuss your specific situation.

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About the Author

John T. Murray

John T. Murray, CPA, Partner

John is a member of the Firm’s Financial Services and Mergers & Acquisitions and Technology industry teams with over 20 years of experience in both the private and public accounting practice areas. He applies his experience to provide insights and identify opportunities for closely-held businesses in the real estate, healthcare, private equity, and government contracting industries. He provides ongoing budgeting, forecasting, cash management, and compensation planning for many of his clients. John also applies his expertise and knowledge in structuring transactions and reviewing proposed acquisitions in order to minimize the tax consequences for his clients that are located throughout the US as well as internationally.

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The information contained within this article is provided for informational purposes only and is current as of the date published. Online readers are advised not to act upon this information without seeking the service of a professional accountant, as this article is not a substitute for obtaining accounting, tax, or financial advice from a professional accountant.


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