As the IRS progresses in processing and issuing Employee Retention Credit (ERC) refunds, understanding emerging trends remains critical for taxpayers and their advisors. In TaxNow’s recent white paper, we detailed findings and observations on IRS processing of ERC claims from August through mid-October 2024. We then shared updates during our on October 30th webinar, incorporating data through the end of October.
Now, as we move into November, we have observed notable shifts that are worthy of a new update. These patterns, though still developing, provide valuable context for understanding the IRS’s approach and preparing for what lies ahead in the ERC landscape.
1. Refund Processing - After a significant increase near the end of October, ERC refund payments have fallen nearly 90% over the last two weeks.
2. ERC Quarters - While a significant percentage of ERC refunds processed in August through October related to ERC claims from Q2 2020, claims paid into late October through today, represent a broader array of ERC quarters.
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3. Average Refund Size - Along with the volume of refunds processed, the average refund size has also decreased over the past two weeks.
4. Claim Denials - Finally, claim denials have also fallen by nearly 80% over the previous weeks, which fall closely in line with the reduction in actual refunds processed. It should also be noted that claim denials still primarily relate to ERC claims from Q3 2021.
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While two weeks is a short timeframe to determine real trends, TaxNow’s data may indicate that the IRS is nearing completion of processing its “low risk” and “high risk” claim pools first outlined in IR-2024-169. These categories were only estimated to represent a minority of the outstanding claims as of June 2024 (between 20 - 40% of all claims).
Although the slowdown in refund processing could signal a pivot to more complex or uncertain cases, it’s too early to make definitive conclusions.
Put simply - stay tuned and continue monitoring for ERC updates. While TaxNow’s recent data suggests a potential slowdown in claims processing, we do expect the IRS to continue working through its backlog.
ERC claimants who received refunds prior to September 2023 (when the original ERC moratorium began) should remain vigilant. The IRS has started issuing “clawback letters” on Letter 6577-C for refunds they believe were paid in error, making it essential for claimants to regularly review their tax transcripts and stay prepared to address any correspondence or actions from the IRS.
TaxNow will share another update next month summarizing the full month of November along with early December findings. For now, staying informed remains the best course of action.
