Employee Retention Credit Update: New Voluntary Disclosure Program Ending November 22

September 6, 2024

IRS announces second round of ERC-Voluntary Disclosure Program

On August 15, 2024, the IRS announced a second round of Employee Retention Credit Voluntary Disclosure Program (ERC-VDP). The ERC-VDP aims to assist taxpayers who received the Employee Retention Credit (ERC) in identifying themselves and repaying the ERC if they were not entitled to receive it.

The second ERC-VDP is open now through November 22, 2024.

The second round disclosure is very similar to the ERC voluntary disclosure program that ended on March 22, 2024. A notable difference is that the percentage of the ERC needing repayment has increased to 85%, up from the previous 80%. Additionally, only ERC claims for the 2021 tax year can be submitted in this round.

Benefits of participating in the second ERC-VDP:

You only must repay 85% of the ERC you received.
You do not have to repay any interest you received on your ERC.
The 15% reduction is not taxable income.
You do not have to amend your tax returns to reduce wages.
The IRS will not charge penalties or interest on the ERC amount if you pay the full 85% by the time you return your signed closing agreement.
The IRS won’t audit ERC on your employment tax return for the tax periods resolved.

Who can apply for the second ERC Voluntary Disclosure Program?

Employers who previously claimed and received ERC but have determined they were not eligible for ERC for some or all quarters in 2021.
Not under criminal investigation and have not been notified of the intent to begin investigation.
Not under employment tax examination (audit) for any tax period for which taxpayer is applying for second ERC-VDP
Taxpayer has not received Letter 6577-C from the IRS informing of intent to recapture ERC for any tax period for which taxpayer is applying for second ERC-VDP.
Taxpayer has not received notice and demand for payment of all or part of the claimed ERC.
Taxpayer has not previously filed an amended employment tax return to eliminate the ERC claim.

How to participate in the ERC voluntary disclosure program

Employers must submit Form 15434, Application for Employee Retention Credit Voluntary Disclosure Program, by November 22, 2024.
If filing for the first or second quarter of 2021, Form SS-10, Consent to Extend Time to Assess Employment Taxes, must be submitted with Form 15434.
Applicants must use online filing at IRS document upload tool and click the blue “Use the Document Upload Tool” box.
The IRS recommends advance payment of ERC amounts at the time of application using the Electronic Federal Tax Payment System (EFTPS) but they do not require it.
The IRS will review the application package and verify eligibility for the ERCVDP. If approved, the IRS will provide a letter with next steps and a closing agreement.
Unless approved for an installment agreement, full payment of any amount due must be made at the time of signing the ERC-VDP closing agreement

If a taxpayer used a third-party payroll agent to submit their ERC claims, the ERC-VDP application must be completed and submitted by the third party on behalf of the taxpayer.

If the taxpayer is unable to pay the full ERC-VDP amount, the IRS can consider you for an installment plan to pay overtime or some other collection alternative. If you plan to apply for an installment agreement, Form 433-B must be included in the ERC-VDP application package along with all support documents.

Other ERC News

In addition to the ERC-VDP announcement, the IRS recently issued new warning signs of incorrect ERC claims, as follows:

Essential businesses during the pandemic that could fully operate and didn’t have a decline in gross receipts.
Businesses unable to support how a government order fully or partially suspended business operations.
Businesses reporting family members’ wages as qualified wages.
Businesses using wages already used for Paycheck Protection Program loan forgiveness.
Large employers claiming wages for employees who provided services.

Please contact your Herbein tax consultant if you have questions or need assistance with the new ERC-VDP or the IRS ERC warning signs.

Article contributed by Jacob M. Sefchik