Bipartisan push to repeal the Employee Retention Tax Credit
By Madeline Armstrong
The Center Square
Arizona Congressional District One Congressman David Schweikert introduced the Employee Retention Tax Credit Repeal Act this week along with Congressmen Jared Golden, D-ME., Mike Kelly, R-Penn. and Glenn Grothman, R-Wisc. This bipartisan legislation would rollback the Covid era Employee Retention Tax Credit that allowed businesses who continued to pay their employees during the Covid-19 pandemic to receive tax credits.
However, while this initiative was well intentioned as a part of the CARES Act, the program has been fraught with fraud, according to the IRS. The tax credits only qualify when applied to payrolls between March 2020 through the end of 2021. It initially provided a tax credit of up to $5,000 per employee, but after multiple reforms, now provides a tax credit of up to $28,000 per employee.
However, the Act states that businesses are able to file for the credit until April 15, 2025 – and some ERTC promoters are taking advantage of this, encouraging businesses that do not qualify to apply, creating a large backlog of claims.
"The further we get from the pandemic, we believe the percentage of legitimate claims coming in is declining," said IRS Commissioner Danny Werfel told attendees at the 2023 IRS Nationwide Tax Forum in Atlanta. "Instead, we continue to see more and more questionable claims coming in following the onslaught of misleading marketing from promoters pushing businesses to apply. To address this, the IRS continues to intensify our compliance work in this area."
Furthermore, the Committee for a Responsible Federal Budget released an analysis earlier this year stating that this program may end up costing more than seven times the initial projected deficit and go to businesses that do not need it to retain employees.
“While original scores put the cost of the ERC at about $78 billion, it may end up costing over $550 billion,” reads the analysis. “Very few businesses who applied this late in the process – a year and a half after the beginning of the pandemic – need these funds for its originally intended purpose.”
Now, Congress is stepping in. This repeal act would disallow the processing of any claims filed after Jan. 31, 2024, ending the ERTC. Schweikert claims that not only would this limit fraud, it would allow the IRS to swiftly move through the backlog of claims and provide relief to small businesses.
"A 1.4 million return backlog still exists, and moving the deadline up, rather than waiting until April 2025, will enable the IRS to go after the bad actors seeking to take advantage of taxpayers while approving legitimate claims faster and delivering long-overdue refunds to small businesses,” Schweikert said in a statement. “Congress would be perpetuating a moral hazard if this level of fraud were allowed to go unpunished. It’s past time fiscal responsibility prevails, and we act on behalf of future generations who will be shouldered with a more than $35 trillion national debt.”
In addition to rolling back the ERTC claims deadline, the repeal act would also increase penalties for fraudulent promoters from $1,000 to $10,000 for individuals and $200,000 for business promoters, impose a $1,000 penalty for those who do not comply with the due diligence requirements and extend the statute of limitations period on assessments to six years.
“It’s past time we end this program — the conditions that made it necessary are over, and it’s a ripe target for tax cheats,” Golden said in a statement. “Taking it off the books will protect taxpayers from fraud.”
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Questioning a Retro-active End: Damage to Honest Taxpayers
I am 100% for rooting out fraud and improper claims, but I know many honest taxpayers who, because they were so cautious, did not file for ERC until this year. Some are amazing nonprofits who serve veterans or low income families. They are in states like Virginia, and clearly qualify.
Are we willing to deny all of these valid claims and reverse a promise made to them? What if in reality 50% or more of them are valid? What if even 20% are valid? Have these members of Congress ever met with these honest constituents who will be affected? What data has the IRS provided to Congress that supports their allegation of widespread abuse? If it is so bad and so obvious, why hasn’t the IRS stopped the people who are creating this problem? They’ve had 12 months to do so.
The IRS has been asked multiple times since September 2023 to provide real data to verify this allegation, but has yet to do so, not have they shared their data points about their recent risk analysis in June.
If I have a sharp increase in business deductions that lowers my tax liability, am I considered guilty till proven innocent? Can the IRS now claim with analytics I’m high risk and therefore reject my deductions without giving me a chance to show my documentation? In effect, that’s what is happening here.
Members of Congress should have hard evidence from the IRS before signing a bill that reverses their bipartisan promise. Otherwise, they risk even more distrust in our government and elected officials. How can we consider tax credits to be an incentive if we they can be retroactively ended?
As a reminder, the overwhelming majority of these affected taxpayers are small and minority owned businesses and no profits. They don’t have a loud voice. They need members of Congress to look out for them, and not run them over.
Our military is very careful about ever striking an enemy to avoid killing or injuring innocent civilians. Congress should have the same thinking about tax.
Ending ERC early is fine, but give taxpayers a 30 day notice. Hearings on ERC should include tax attorneys who have overseen thousands of ERC claims to ensure Congress is hearing those who represent the taxpayers, rather than only hearing the IRS.