Proposed Changes to the Employee Retention Tax Credit Program
The Tax Relief for American Families and Workers Act of 2024 (H.R. 7024) includes several substantial changes to the Employee Retention Credit (ERC) program. These updates aim to limit further claims while expanding IRS authority to audit existing ones. Here is what you need to know.
New ERC Claims No Longer Allowed After January 31st
One of the most impactful alterations is the hard cutoff date for new ERC refund claims.
If a business has not submitted an application already, no new claims would be accepted after January 31, 2024, based on the current bill language.
This means companies that may have qualified in 2021 or 2022 but did not file yet would lose eligibility. For example, a restaurant that experienced a 20% revenue decline in Q1 2022 compared to 2019 would typically qualify. Still, under H.R. 7024, they could not apply for the credit if they had not done so by the January deadline.
Essentially, this change seeks to limit further payouts from the program going forward.
Extended Audit Window Up to 6 Years
Another essential update is the expansion of the ERC audit window from 3 years to 6 years from the filing date.
This allows the IRS additional time to review claims thoroughly and assess accuracy and potential fraud.
Under current rules, the IRS typically has three years to audit amended quarterly tax returns (Form 941-X) claiming the ERC refund. The bill would double this timeframe.
For instance, if a manufacturing company filed an ERC amendment in Q3 2022, the IRS would have until Q3 2028 to complete an audit, rather than 2025.
Next Steps?
The timeline for passage of H.R. 7024 remains uncertain as it heads to the Senate after clearing the House. While it seems likely that the ERC program will end as of January 31, 2024, we will continue to push forward with customers that are in the process of filing.
As we get further clarification, we will continue to keep customers updated. What is most likely certain is that those with existing amendments should expect a longer and more intense audit review process in coming years.
