New IRS Commissioner Daniel Werfel beforehand mentioned he would “decide to prioritizing” the processing velocity of COVID-19 tax credit claimed through the Kind 941 and 941-X employment tax types, which have a present, mixed IRS backlog of almost 2.4 million, as of March 3, 2023.

On the identical day because the U.S. Senate confirmed Daniel Werfel as IRS Commissioner, President Biden introduced his Administration’s fiscal yr (FY) 2024 finances that requires a 15% enhance in IRS funding to $14.1 billion after final yr’s Inflation Discount Act (P.L. 117-169) already granted $79.6 billion in funding to the Service.

Funding from IRS finances going to enforcement providers

One of many provisions within the Inflation Discount Act, signed into legislation by President Biden on August 16, 2022, allocates almost $80 billion in funding to the IRS over a 10-year interval. In line with the nonpartisan Congressional Analysis Companies (CRS), $45.6 billion of those funds are being distributed to IRS enforcement providers. The report says that supporters of the funds declare it’ll assist to cut back the “tax hole.”

Tax hole

In October 2022, the IRS reported that the estimated gross employment tax hole (consisting of non-filing, underreporting, and underpayment) was $93 billion (19% of the whole $496 billion gross tax hole) for tax years 2014 by 2016.

Great amount of unprocessed Kinds 941

Employers should file sure federal employment tax returns with the IRS that embrace Kind 941 (Employer’s Quarterly Federal Tax Return). As of March 3, 2023, almost one week earlier than Werfel was confirmed as IRS Commissioner, and Biden introduced his FY 2024 finances proposal, the IRS had 1.7 million unprocessed Kinds 941. The Service continues to advise filers that it processes these tax returns within the order they’re acquired and to not file a second return.

Notable backlog of adjusted employment tax returns, too

The IRS additionally has a backlog of 696,000 Kinds 941-X (Adjusted Employer’s Quarterly Federal Tax Return or Declare for Refund), a few of which can’t be processed till the associated Kinds 941 are processed. The Service explains that these adjusted returns are being labored on at two websites with skilled workers to course of attainable coronavirus (COVID-19) tax credit.

It’s nonetheless attainable for employers to regulate beforehand filed Kinds 941 to amend, appropriate, or declare a COVID-19 tax credit score, such because the worker retention credit score (ERC) or paid sick and household depart credit score, and Biden’s FY 2024 finances features a provision that might enhance the statute of limitation on COVID-19 tax credit.

New IRS Commissioner dedicated to bettering ERC processing velocity

By a Senate vote of 54 to 42, Daniel Werfel was confirmed as IRS Commissioner on March 9, 2023, and can now oversee the huge funding offered by the Inflation Discount Act and presumably one other $14.1 billion from Biden’s FY 2024 finances proposal.

A few weeks earlier than his affirmation, Werfel was requested by Senators in its Finance Committee concerning the worker retention credit score (ERC). Particularly, Senator John Cornyn (R-TX) requested about bettering the processing velocity for this pandemic-era tax credit score claimed on Kind 941. Werfel mentioned he understood the significance of guaranteeing taxpayers obtain tax advantages and would “decide to prioritizing this subject.”

TIGTA report famous processing delays that also exist

On August 31, 2022, a few weeks after Biden signed the IRA into legislation, the Treasury Inspector Common for Tax Administration (TIGTA) issued a report that famous continued IRS processing delays prevented employers from receiving COVID-19 tax credit as a result of “an absence of up to date programming and procedural steering.”

As talked about earlier than, employers used Kind 941 to assert COVID-19 tax credit and Kind 941-X to make changes or corrections to those credit, which can embrace utilizing this kind to assert a tax credit score if eligibility was not initially decided. TIGTA famous from its report, that on February 1, 2022, there have been almost half 1,000,000 unprocessed Kinds 941-X. Now, greater than a yr later, the whole unprocessed Kinds 941-X are simply shy of 800,000.

Extra Kinds 941 to be filed quickly

Not too long ago, the IRS issued a March 2023 model of Kind 941 to be used this yr. The primary quarter concludes on the finish of this month with first quarter Kinds 941 due by the top of April 2023. This implies many extra Kinds 941 will probably be submitted and sure extra Kinds 941-X to observe if corrections or changes are wanted.

Can the funding assist clear the Kind 941 backlog?

Can the almost $80 billion in funding from the IRS and the $14.1 billion in proposed funding from Biden’s FY 2024 finances assist to clear up the backlog? Again in late-August 2022, TIGTA advisable the IRS develop plans to prioritize processing backlogged claims, amongst different issues. Nevertheless, greater than half a yr later, the backlog of Kinds 941-X continues to go within the unsuitable course.

Using the correct expertise might help to streamline processes and get by the backlog extra effectively. Contact a Thomson Reuters consultant to study extra about our options and the way they might help you.