The Latest Information on the ERTC
Updated September 18, 2023
IRS ERTC Backlog
As of September 6, 2023, the number of unprocessed Forms 941-X was approximately 637,000.
NAPEO Efforts on the ERTC
- Ongoing – meetings with members of Congress to ask them to put pressure on the IRS to clear out the backlog of ERTC filings.
- September 15, 2023 - NAPEO issues a press release supporting the IRS' decision to pause new ERTC claims so it can focus on clearing its existing backlog of legitimate claims.
- September 15, 2023 - NAPEO sends a letter to federal lawmakers asking for continued oversight of the IRS as more than 637,000 ERTC claims still await processing. This letter also includes a one-page summary of the IRS' announcements.
- September 14, 2023 - The IRS announces that it will immediately pause new ERTC claims so it can focus on ridding its growing accumulation of fraudulent claims. NAPEO President and CEO Pat Cleary's response to this announcement is featured in MarketWatch.
- September 5, 2023 - The IRS announces it will slow the processing of ERTC claims as it grapples with an influx of fraudulent claims. NAPEO President and CEO Pat Cleary's response to this announcement is featured in the Wall Street Journal.
- July 31, 2023 - NAPEO President and CEO Pat Cleary is featured by the House Ways and Means Committee for his compelling testimony before its Oversight Committee the week prior.
- July 27, 2023 - NAPEO President and CEO Pat Cleary testifies before the House Ways and Means Oversight Subcommittee on the ERTC backlog's harmful impacts on small and mid-size businesses. NAPEO issues a press release highlighting Pat's testimony.
- July 25, 2023 - NAPEO launches ertcdelayshurtsmallbiz.com to show the firsthand impact the ERTC backlog has on small and mid-size businesses.
- July 14, 2023 - NAPEO President and CEO Pat Cleary sends a letter to IRS Commissioner Daniel Werfel asking that additional personnel assigned to clear the ERTC claims backlog are kept in place until all forms filed before 2023 are processed.
- June 22, 2023 - NAPEO survey of 43 members finds that 18,000 small business clients are still waiting for the IRS to approve at least $3 billion in ERTC credits filed before 2023.
- April 19, 2023 – Following NAPEO’s grassroots campaign and questions for the record, IRS Commissioner Daniel Werfel tells the Senate Finance Committee that the agency will soon begin processing 40,000 ERTC applications per week - double its current rate. Werfel says the backlog has been due in part to concerns of fraud in 941-X filings, and that the application is “extremely complicated" to process given it is a paper-based amended return across numerous years. “It’s a filing we’re going to be dealing with for years, but I think we’re going to make progress,” Werfel says.
- April 17, 2023 – NAPEO sends a letter to Treasury Secretary Janet Yellen and IRS Commissioner Daniel Werfel ahead of Werfel’s appearance before the Senate Finance Committee the following day. We warn of the imminent dangers posed to small businesses as the logjam nears one million outstanding applications. NAPEO also submitted questions for the record on the ERTC backlog for Werfel’s hearing.
- March 23, 2023 – Following the grassroots efforts of NAPEO, our members, and their clients, ten Republican members of the House Ways & Means Committee sent this letter to the new IRS commissioner requesting an ERTC status update by April 3.
- March 17, 2023 – NAPEO issues a press release highlighting its campaign to clear the IRS’ growing tax credit backlog and the threats that inaction poses to small and mid-sized businesses across the country.
- March 15, 2023 – letters to the House and Senate Small Business committees from NAPEO President and CEO Pat Cleary urging its members to put pressure on the IRS to clear out the backlog of ERTC claims.
- March 9, 2023 – NAPEO begins a grassroots letter writing campaign to Congress urging members to put pressure on the IRS to clear out the background of ERTC claims. NAPEO members and their clients send hundreds of letters to federal lawmakers.
- February 15, 2023 – NAPEO provides the staff of the Senate Finance Committee with background material and “questions for the record” on the ERTC for the confirmation hearing of Danny Werfel, the nominee to be the next Commissioner of the IRS.
- February 6, 2023 – letter to Congress from NAPEO President and CEO Pat Cleary urging the House and Senate to put pressure on the IRS to clear out the backlog of ERTC claims.
- December 5, 2022 – letter to IRS Counsel Rachel Levy urging that small businesses claiming the ERTC on Form 941-X should be subject to the same IRS level of review that is applied to other small businesses, regardless of whether the claim is reported on Schedule R by an aggregate filer, such as a PEO or CPEO.
- May 17, 2022 – NAPEO members met with 35 representatives and Senators to discuss the problems with the IRS processing Form 941-X and the harm this delay is causing their small business clients.
- April 27, 2022 – Meeting with House Ways and Means Oversight Subcommittee staff, to discuss ERTC delays and incorrect processing of tax credits taken by PEO clients.
- April 26, 2022 –Meeting with Senate Finance Committee staff to discuss ERTC delays and incorrect processing of tax credits taken by PEO clients.
- April 7, 2022 – letter to Sec. Yellen and Comm’r Rettig regarding 941/941-X delays, ERTC, and offsets.
- May 7, 2021 – letter to IRS Counsels Rachel Levy and Janine Cook regarding 941-X, ERTC.
- March 17, 2021 – letter to the Secretary of the Treasury Janet Yellen and the IRS Commissioner Charles Rettig from NAPEO and three other trade associations (American Payroll Association, U.S. Chamber of Commerce, and American Institute of CPAs) to put more resources into processing ERTC claims.
- July 1, 2020 – letter to Carol Weiser and Vicki Judson following up to 5/29/2020 NAPEO email.
The ERTC was created by the CARES Act in March. It was extended and modified by the Consolidated Appropriations Act of 2021. Here’s how that law modified the ERTC.
- Repeals the provision denying the ERTC to employers receiving a PPP loan. Instead, mechanisms would be created to prevent the same wages from being used for both PPP loan forgiveness and the ERTC.
- Extends the ERTC to apply to wages paid before July 1, 2021 (instead of January 1, 2021).
- Increases the credit percentage from 50 percent to 70 percent of applicable wages.
- Increases the per-employee limitation on applicable wages from $10,000 total to $10,000 per calendar quarter. In combination with the increased credit percentage, this would increase the maximum credit per employee from $5,000 to $7,000 per quarter (up to $14,000 for the first two quarters in 2021).
- The following language was added to the ERTC provisions that specifically addresses PEOs:
Any forms, instructions, regulations, or guidance described in paragraph (2) shall require the customer to be responsible for the accounting of the credit and for any liability for improperly claimed credits and shall require the certified professional employer organization or other third-party payor to accurately report such tax credits based on the information provided by the customer. [Emphasis added.]
It is not clear whether this provision applies retroactively or just to new credits taken in 2021.
- Makes the ERTC available if the business experienced a decline of at least 20 percent in gross receipts (instead of a 50 percent decline) as compared to the same calendar quarter in the prior year.
- Modifies the small employer definition of qualified wages to apply to employers that have 500 or fewer employees (instead of 100 of fewer employees).
The ERTC was modified again in March 2021 by the American Rescue Plan Act, which, among other changes, added the ERTC to the Internal Revenue Code (§ 3134) and extended it to Q3 and Q4 2021. As noted above, The Infrastructure Investment and Jobs Act (IIJA), which was signed into law on November 15, 2021, retroactively terminated the ERTC one quarter early for most employers so that the ERTC is generally not available with respect to wages paid on or after October 1, 2021. Employers that meet the definition of “recovery startup business” in Code § 3134, as amended by the IIJA, continue to be eligible to claim the ERTC for wages paid through December 31, 2021.
Employers that are no longer eligible for the ERTC in Q4 2021 but that (1) received an advance payment of the ERTC for Q4 using Form 7200 and/or (2) reduced their payroll tax deposits earlier in Q4 in anticipation of claiming the ERTC for Q4 should review the guidance in Notice 2021-65 (see link above) for information regarding repayment of those amounts.
The Infrastructure Investment and Jobs Act (Public Law 117-58) contains a provision that ends the Employee Retention Tax Credit (ERTC) at the end of the third quarter of 2021. Most employers should not claim any ERTC on the Form 941 for Q4 2021, with one exception for a “recovery startup business.” Employers that meet that definition could still claim the ERTC for Q4 2021 (if otherwise eligible).
Employers may continue to claim the ERTC for Q1-Q3 2021 if they are eligible.