Should You Withdraw Your Employee Retention Tax Credit Claim?

Employee retention tax credit written on form next to notebooks on a desk

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published 23 October 2023

Some businesses can withdraw their employee retention credit (ERC) claims under a new process announced by the IRS. The agency says employers that submitted an ERC claim that's still being processed can withdraw that claim and avoid the possibility of getting a refund for which they're ineligible. The purpose is to help businesses influenced by promoters and scammers avoid penalties for fraudulent claims.

When claimed properly, the ERC (or ERTC) is a complex refundable tax credit available to certain employers who paid employees during the COVID-19 pandemic. However, abusive tax promoters have encouraged small businesses to file fraudulent claims for the credit.

Thousands of the approximately 3.6 million claims the IRS has received since the beginning of the program have been flagged for audit. Hundreds of ERC-related criminal cases are being worked.

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IRS announces ERC claim withdrawal process

The ERC withdrawal process comes after the IRS stopped processing new ERC claims for 2023. That immediate moratorium on new claims processing and the latest special ERC claim withdrawal process is part of an effort at the agency to protect small businesses and organizations from scams.

According to the IRS, since the moratorium was announced, “marketers and scammers have already revised their employee retention credit pitches.” Some, the agency says, are “pushing employers who submit an ERC claim into agreeing to costly up-front loans in anticipation of a refund.”

“The withdrawal option allows employers with pending claims to avoid future problems, and we encourage them to closely review the withdrawal option and the requirements,” IRS Commissioner Danny Werfel stated in a release regarding the initiative.

Should you withdraw your ERC claim? Here’s some of what you need to know.

Which businesses can withdraw an ERC claim?

Claiming an illegitimate ERC claim can result in interest, penalties, and repayment of the tax credit amount. But in some cases, withdrawing the claims can avoid those consequences.

But note: The IRS says, “Those who willfully filed a fraudulent claim, or those who assisted or conspired in such conduct, should be aware that withdrawing a fraudulent claim will not exempt them from potential criminal investigation and prosecution.”

And not all business owners are eligible to withdraw a previously submitted ERC claim. According to the IRS, you can withdraw the claim only if all the following apply.

You made the claim on an adjusted employment return (Forms 941-X, 943-X, 944-X, CT-1X).
You filed the adjusted return only to claim the ERC and made no other adjustments.
You want to withdraw the entire amount of your ERC claim.
The IRS has not paid your claim. (If the IRS has paid your claim, you may still withdraw your claim if you have not cashed or deposited your refund check.)

What if you’re not eligible to withdraw your claim? According to the IRS, you might still be able to “reduce or eliminate” your ERC claim by filing an amended tax return if you do not meet the above criteria.

How to withdraw an ERC claim

The IRS has specific instructions for withdrawing ERC claims.

If your payroll submitted the claim, the company may need to submit the withdrawal request for you.
If notified of an audit, you can send the withdrawal request to the assigned examiner or respond to the notice.
If you filed the claim yourself and are not under audit, you can fax withdrawal requests to the IRS using a computer or mobile device (applies only if you have not cashed, deposited, or received your refund check).

Note: If you received but have not cashed a refund check, you must mail your voided check with your withdrawal request.

Taxpayers can find detailed instructions for withdrawing claims on the IRS’ Withdraw an Employee Retention Credit Claim webpage. If you have concerns about the process or whether you should withdraw your claim, consult a trusted, professional tax professional or financial advisor.

In the meantime, the IRS urges taxpayers not to trust unsolicited correspondence from anyone urging them to claim an ERC credit and not to take out a loan in anticipation of receiving a refund for their claim. If you receive a tax scam email or otherwise suspect ERC fraud, you should report it to the IRS.

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Katelyn has more than 6 years’ experience working in tax and finance. While she specializes in tax content, Katelyn has also written for digital publications on topics including insurance, retirement and financial planning and has had financial advice commissioned by national print publications. She believes that knowledge is the key to success and enjoys helping others reach their goals by providing content that educates and informs.