IRS Extends Deadline for Third-Party Payers to Resolve Incorrect ERC Claims

The IRS is giving payroll companies and third-party payers more time to help resolve their clients’ erroneous claims for the Employee Retention Credit (ERC).

The tax agency has extended the deadline for third-party payers—such as certified professional employer organizations, professional employer organizations, and IRC Section 3504 agents—to file a supplemental claim for their clients until Dec. 31. That deadline was set to expire on Nov. 22, the same day the IRS closed its second voluntary disclosure program for improper ERC claims.

The ERC is a refundable tax credit that was enacted during the height of the COVID-19 pandemic to encourage businesses to keep their employees on payroll. However, the program became inundated with fraud—much of which the IRS blames on aggressive marketing tactics and misleading claims by so-called ERC mills, which encouraged ineligible businesses to apply for the credit.

Danny Werfel

“Tax professionals and IRS staff are hearing repeatedly that many businesses very much believe they qualify for the credit when, in fact, they don’t,” IRS Commissioner Danny Werfel said in a statement on Nov. 21. “We urge businesses with pending claims to re-examine their claims to see if they were misled and use the options to proactively resolve their issues. They should listen to trusted tax professionals, not promoters.”

Third-party payers report and pay clients’ federal employment taxes under the third-party payer’s employer identification number. The IRS said that some third-party payers filed ERC claims for multiple business clients. If one of their clients has since determined it claimed the ERC in error and wants to resolve that claim, the third-party payer needs to correct it, the agency said.

The supplemental claim process, which the IRS introduced in September, lets a third-party payer that filed a previous claim for multiple clients “withdraw” some of those claims for clients that ended up not qualifying for the ERC while maintaining the claims of their qualifying clients.

According to the IRS, a supplemental claim is an adjusted employment tax return that allows a third-party payer to correct and/or consolidate previous claims that they filed on or before Jan. 31, 2024, if those claims haven’t yet been processed by the agency.

By filing a supplemental claim, the third-party payer is asking the IRS not to process outstanding adjusted employment tax returns for the tax period. The IRS will treat claims filed before the supplemental claim as if they were never filed.

The supplemental claim process is for third-party payers to which all of the following apply:

The third-party payer has filed one or more claims aggregating ERCs for itself and/or clients using the third-party payer’s employer identification number.
The third-party payer made the claim on an adjusted employment tax return (forms 941-X, 943-X, 944-X, or CT-1X).
The IRS hasn’t processed any of the claims the third-party payer is including in the supplemental claim.

The supplemental claim process isn’t for:

Common law employers that didn’t use a third-party payer and instead filed adjusted employment tax returns using their own employer identification number. These employers may be eligible for the claim withdrawal process if their claim is pending. The IRS said last month that the claim withdrawal process remains open.
Third-party payers that received the full amount of ERC claimed on behalf of themselves and their clients—either as a refund or a credit against tax owed.

A third-party payer must prepare one supplemental claim for each tax period filed on or before Jan. 31, 2024. Each claim must include the correct amount of ERC and any other corrections for that tax period. The third-party payer should use the adjusted employment tax return for their type of business—Form 941-X, Form 943-X, Form 944-X, or Form CT1-X—to prepare the supplemental claim.

The third-party payer shouldn’t include ERC amounts that were filed after Jan. 31, 2024, the IRS said. The amount of ERC on the supplemental claim must be equal to or less than the cumulative amount of ERC claimed on the returns the third-party payer is replacing by filing the supplement claim.

Third-party payers can submit a supplemental claim using a computer or mobile device to fax the documents by 11:59 p.m. on Dec. 31, 2024.

For more information, see Filing a supplemental claim for the Employee Retention Credit and Supplemental claim frequently asked questions for third-party payers.