Resolving an Improper ERC Claim

Withdrawal Program

If you have determined you do not qualify for an Employee Retention Credit (ERC) and have not received the refund claimed, you may qualify for the IRS’s ERC withdrawal program.

Taxpayers should carefully follow the special instructions at IRS.gov/withdrawmyERC summarized below.

• If a professional payroll company filed your ERC claim, consult with the payroll company. The payroll company may need to submit the withdrawal request for you, depending on whether your ERC claim was filed individually or batched with others.
• If you filed your ERC claim yourself, haven’t received, cashed or deposited a refund check, and have not been notified your claim is under audit, fax your withdrawal request to the IRS. The IRS has set up a special fax line, 855-738-7609, to receive withdrawal requests. This enables the agency to stop processing a claim before the refund is approved. If you are unable to fax your withdrawal, you can mail it, but it will take longer for the IRS to receive your request.
• If you have been notified you are under audit, send the withdrawal request to the assigned examiner or respond to the audit notice if no examiner has been assigned.
• If you received a refund check but haven’t cashed or deposited it, you can still withdraw your claim. Mail the voided check with your withdrawal request using the instructions at IRS.gov/withdrawmyERC.

If you request to withdraw your claim, you’ll be asking the IRS to not process your entire adjusted employment tax return (Form 941-X, 943-X, 944-X, CT-1X) for the tax period that included your ERC claim. Claims that are withdrawn will be treated as if they were never filed. The IRS will not impose penalties or interest. Note, however, that withdrawing a fraudulent ERC claim will not exempt you from potential criminal investigation and prosecution.

If you made any other changes on the adjusted employment tax return or you only need to reduce your ERC claim (not withdraw it entirely), you can’t use the withdrawal process. Instead, you need to amend your return. For more information on these situations, see the Correcting an ERC claim – Amending a return section of the frequently asked questions about the ERC.

IRS.gov/withdrawmyERC provides the following information:

• Who can ask to withdraw an ERC claim
• How to request an ERC claim withdrawal
• What happens next

What happens after I withdraw my request?

The IRS will send you a letter telling you whether your withdrawal request was accepted or rejected. Your request is not approved until you receive an acceptance letter from the IRS.

If your withdrawal is accepted, you may need to amend your income tax return. See Claiming the ERC for an explanation of how the ERC affects your income tax return.

ERC Voluntary Disclosure Program

If your ERC claim has already been paid, you may qualify for the IRS’s ERC Voluntary Disclosure Program (ERC-VDP). The program ends March 22, 2024.

Advantages of the ERC-VDP

There are several benefits to using the ERC-VDP if you received the ERC but weren’t entitled to it and now want to pay the money back. If you apply to the ERC-VDP:

• You need to repay only 80% of the ERC you received as a credit on your return or as a refund.
• You don’t need to repay any interest you received on your ERC refund.
• You don’t have to amend income tax returns to reduce wage expense.
• The 20% reduction is not taxable as income.
• The IRS will not charge penalties or interest on the claimed ERC amount if you pay it in full (claimed ERC minus 20%) by the time you return your signed closing agreement to IRS.
• The IRS won’t examine ERC on your employment tax return for tax period(s) resolved within the terms of ERC-VDP.

For information on who qualifies for the ERC-VDP and how to apply see the IRS’ ERC-VDP page.

What happens after I apply for the ERC-VDP?

The IRS will review your application package and verify your eligibility for the ERC-VDP. The IRS will mail you a letter letting you know they received your application and whether they can proceed with your application or if it was rejected.

Webinars

Tax professionals and others can listen to the recorded:

Nov. 2 IRS webinar, Employee Retention Credit: Latest information on the moratorium and options for withdrawing or correcting previously filed claims.

Feb. 8 IRS Webinar, Employee Retention Credit – Voluntary Disclosure Program (ERC-VDP)

Amending your ERC Return:

If you are unable to participate in the ERC withdrawal or ERC-VDP but need to make corrections to your return see Q1 and Q2 of the ERC FAQs.

Additional Resources

• Employee Retention Credit | Internal Revenue Service (irs.gov)
• IRS announces withdrawal process for Employee Retention Credit claims; special initiative aimed at helping businesses concerned about an ineligible claim amid aggressive marketing, scams
• Employee Retention Credit Eligibility Checklist: Help understanding this complex credit
• Frequently asked questions about the Employee Retention Credit, including eligibility and the withdrawal process.
• IR-2023-247, IRS: New Voluntary Disclosure Program lets employers who received questionable Employee Retention Credits pay them back at discounted rate; interested taxpayers must apply by March 22
• ERC Voluntary Disclosure Program FAQs