IRS Presents Payback Scheme To Employers For Pandemic Tax Rebate

In a recent Internal Revenue Service (IRS) announcement, employers who claimed the pandemic-relief tax credit can return 80% of the funds to reduce IRS scrutiny significantly.

What Happened: As reported by the Wall Street Journal on Thursday, this repayment plan is the government’s newest strategy to counteract fraudulent and ineligible claims of the employee retention tax credit (ERC). The ERC was introduced to support employers in maintaining their payroll during 2020 and 2021, providing up to $26,000 per worker.

The IRS has initiated thousands of audits and hundreds of criminal prosecutions linked to the ERC. Now, it is presenting employers with an opportunity to avoid civil penalties and is calling for aid in investigating third-party firms that recommended businesses to claim the credit.

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After receiving the credit, employers who doubt their eligibility can return 80% of the funds. The IRS permits this partial repayment due to firms that offered help with the credit charging approximately 20% in fees.

"We did not want to penalize well-intentioned businesses who received an erroneous payment," IRS Commissioner Danny Werfel said.

The IRS requires employers to inform them by March 22 to be eligible for the 80% repayment. Those under criminal investigation, employment tax audit, or needing to repay any interest received with their ERC payments are not eligible.

Why It Matters: The IRS’ decision comes following a recent announcement about changes in the processing of ERC claims, which led to increased confusion. The main intent behind this move is to target fraudulent companies that flooded the sector. Despite the current situation, businesses are still encouraged to submit their claims, provided they are legitimate. The processing of these claims may take longer, but the program continues to operate within its original deadlines.

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