The Big Question: Why the Hold Up on Your ERC Refund?
The primary reasons for these delays, as explained by the IRS at the end of May, boil down to two key factors. Firstly, the necessary procedural adjustments within the IRS to accommodate COVID-19 safety protocols, including the shift to remote work, have inevitably impacted processing times. Secondly, the sheer volume of refund requests the IRS is currently handling is unprecedented. These issues are primarily affecting the processing of Form 941, the Employer’s Quarterly Federal Tax Return, and crucially, Form 941-X, the Adjusted Employer’s Federal Tax Return or Claim for Refund, which is used for after-the-fact claims like the ERC.
COVID-19’s Impact on IRS Operations
The IRS, like numerous organizations across the United States, has been significantly affected by the COVID-19 pandemic. These disruptions have led to considerable delays in various IRS services, including the processing of mail, tax returns, payments, refunds, and general correspondence. As the IRS itself acknowledged, these service disruptions have directly resulted in businesses applying for the ERC experiencing “a longer than anticipated tax refund.” While the IRS has stated that mail processing is returning to normal timelines, the initial procedural changes and the subsequent backlog have created a substantial bottleneck in their systems.
The Sheer Volume of Requests: A System Overwhelmed
Beyond operational changes, the sheer number of ERC claims has overwhelmed the IRS. As of early May 2021, the IRS reported a staggering backlog of approximately 200,000 Form 941 filings received for years prior to 2021. When 2021 returns are included, the total number of unprocessed Form 941s (which, importantly, includes Form 941-X for ERC claims) ballooned to an astonishing 1.9 million. This massive influx of claims, combined with the operational adjustments, has created a significant processing backlog, leading to the extended wait times for refunds.
What is the IRS Doing to Speed Things Up?
The IRS has recognized the issue and is actively taking steps to mitigate these delays and expedite the processing of returns. One key measure being implemented is the strategic re-routing of tax returns. Returns are being shifted from IRS offices experiencing greater backlogs to those with more available staff capacity. Furthermore, the IRS has stated that returns are being processed strictly in the order they are received. This means that refund requests from 2020 and earlier periods will be processed before those submitted for 2021. The IRS has also provided a contact number, (877) 777-4778, for inquiries. However, it’s worth noting that experiences reported suggest that contacting this number may result in considerable wait times. Importantly, the IRS has advised employers that “employers do not contact the IRS about the return status,” suggesting they are focused on processing the backlog and further inquiries might add to delays.
Should You Be Concerned About the Delay?
While the delays are undoubtedly frustrating, especially when the ERC was intended to provide timely financial support, employers should not be overly concerned about the ultimate outcome. These delays are systemic, affecting a large number of businesses, and are not indicative of issues with individual applications, assuming they are correctly filed. Despite the extended wait times, the IRS delays should not deter eligible employers from pursuing the ERC funds they are entitled to based on their reported positions. The funds are still forthcoming, albeit later than initially anticipated. Patience remains key as the IRS works through the backlog.
