The Employee Retention Credit (ERC) was a government program to prevent job losses during the COVID-19 pandemic. Initially underutilized due to complexity, the IRS allowed for claims to continue to be submitted, which saw an influx since 2021. This has led to a massive increase in pending claims and a total cost far exceeding initial estimates. The IRS is now facing a significant backlog and is investigating potential fraud within the program.
In September of 2023, the IRS intentionally started slowing down the processing of claims to root out suspect applications and determine which employer applications are legitimate. The IRS in June 2024 said that 20% of the pending ERC applications were clearly unlawful claims and estimated as many as 70% of applications have unacceptable levels of risk that require intense IRS scrutiny.
The agency is now starting to process more of the claims but does not see the process moving quickly. The low-risk claims will be the first priority. However, the IRS is being challenged in Arizona court on its ability to pause claim processing that was authorized by Congress.