The Internal Revenue Service said Thursday a review of 1 million claims for the Employee Retention Credit representing $86 billion shows the “vast majority” are at risk of being improper. The ERC was designed to help businesses retain employees during pandemic-era shutdowns, but it quickly became a magnet for fraud. Its complex eligibility rules allowed scammers to target small businesses, offering help applying for the ERC for a fee — even if they didn’t qualify.
Quick Read
- Proposal: Former President Donald Trump proposes to exclude tips from federal taxes.
- Announced: At a June 9 rally in Nevada, a key battleground state with a high concentration of tipped workers.
- Potential Impact:
- Affects millions of workers; 2.24 million waiters and waitresses rely heavily on tips.
- Could increase take-home pay for tipped workers.
- Potentially increases federal budget deficits by $150 billion to $250 billion over the next decade.
- Economic Considerations:
- Might lead to reclassification of wages as tips, further increasing deficits.
- Employers might exploit the exemption by redefining wages as tips.
- Political Reactions:
- Some Republican lawmakers support the proposal for benefiting low-income workers.
- Democrats emphasize increasing minimum wages over tax cuts, dismissing the proposal as a stunt.
- Implementation Concerns:
- Ambiguity on whether the exemption applies to income taxes, payroll taxes, or both.
- Exempting tips from payroll taxes could impact funding for Medicare and Social Security.
- Possible Unintended Consequences:
- Customers might reduce tips if they are tax-free.
- Could undermine efforts to increase the minimum wage for tipped workers.
- Fiscal Analysis: The Committee for a Responsible Federal Budget warns of significant revenue loss and potential for increased federal deficits.
- Comparative Views:
- Howard Gleckman of the Tax Policy Center suggests it could backfire, reducing gratuity and opposing wage increases.
- Skepticism from lawmakers like Sen. Debbie Stabenow and Sen. Ron Wyden, who prefer wage increases for low-income workers.
- Support and Promotion:
- Trump’s proposal has become a recurring theme in his rallies.
- Support from GOP lawmakers and allies, including public endorsements from figures like Kid Rock.
- Political Strategy: Seen as a move to contrast Republican tax cuts with Democratic wage policies ahead of the 2024 election.
The Associated Press has the story:
IRS: ‘Vast majority’ of 1M pandemic-era credit claims show a risk of being improper
Newslooks- NEW YORK (AP) —
The Internal Revenue Service said Thursday a review of 1 million claims for the Employee Retention Credit representing $86 billion shows the “vast majority” are at risk of being improper. The ERC was designed to help businesses retain employees during pandemic-era shutdowns, but it quickly became a magnet for fraud. Its complex eligibility rules allowed scammers to target small businesses, offering help applying for the ERC for a fee — even if they didn’t qualify.
About 10% to 20% of the 1 million claims show “clear signs of being erroneous” and tens of thousands of those will be denied in coming weeks, the IRS said. Another 60% to 70% show an “unacceptable risk” of being improper and will be further evaluated.
“The completion of this review provided the IRS with new insight into risky Employee Retention Credit activity and confirmed widespread concerns about a large number of improper claims,” said IRS Commissioner Danny Werfel. “We will now use this information to deny billions of dollars in clearly improper claims and begin additional work to issue payments to help taxpayers without any red flags on their claims.”
About 10% to 20% show low risk, and the IRS will begin processing those claims. The first payments for that group should begin later this summer.
The IRS stopped processing new claims in September and it said Thursday that the moratorium on ERC claims submitted after Sept. 14, 2023 will continue.
The IRS said businesses can pursue the claim withdrawal process if they need to ask the IRS not to process an ERC claim for any tax period that hasn’t been paid yet.
