ERC Penalty Calculator IRC § 6676

Under IRC § 6676, the IRS can assess a 20% penalty on the "excessive amount" - the difference between what you claimed and what you were actually entitled to. For example, if you claimed $100,000 in ERC but were only entitled to $20,000, the excessive amount is $80,000 and the penalty would be $16,000 (20% of $80,000), plus you must repay the $80,000 plus interest.

The ERC VDP was an IRS program that allowed employers who received improper ERC payments to come forward and repay 85% of the credit (a 15% discount) with no penalties or interest. The second VDP closed on November 22, 2024. When the program was available, it was the best option for those who knowingly or unknowingly received ERC they were not entitled to.

Yes, if your claim has not been processed OR if you received a check but have not cashed or deposited it, you may be able to withdraw your claim. Withdrawal completely removes your claim from consideration, so you would not need to repay anything and would face no penalties. Visit IRS.gov for the ERC Claim Withdrawal process.

The IRS has over 1.4 million ERC claims under review. Many claims were filed by third-party "ERC mills" or promoters who charged contingency fees and helped businesses file claims regardless of actual eligibility. The IRS announced a moratorium on processing new ERC claims in September 2023 and has been sending audit letters to questionable claims.

To qualify for ERC, a business must have either: (1) Experienced a full or partial suspension of operations due to government COVID-19 orders, OR (2) Had a significant decline in gross receipts (50% decline for 2020, 20% decline for 2021). Q4 2021 was only available to "recovery startup businesses" that began after Feb 15, 2020.

You cannot use the same wages for both PPP forgiveness and ERC. If you received PPP loan forgiveness, the wages used for that forgiveness must be excluded from your ERC qualified wages calculation. Many improper claims failed to properly account for PPP coordination.

Under the One Big Beautiful Bill (OBBB) signed July 4, 2025, Q3 and Q4 2021 ERC claims have an extended 6-year statute of limitations from the actual filing date of the Form 941-X. Earlier quarters have the standard 3-year statute. This gives the IRS more time to audit 2021 claims.

Yes, you can request penalty abatement based on reasonable cause using Form 843. You must demonstrate you exercised ordinary business care and prudence. However, reliance on a third-party promoter who was paid a contingency fee is generally NOT considered reasonable cause. Having a qualified CPA or tax attorney review your eligibility before filing is more defensible.

If you received Letter 4464-C, Letter 6312, or another audit notice, respond promptly. Gather documentation supporting your eligibility (government orders, gross receipts records, payroll data). Consider consulting a tax professional. You have the right to appeal an adverse determination to IRS Appeals.

Yes. If the IRS determines your ERC claim was fraudulent (intentionally false), the 75% fraud penalty under IRC § 6663 can apply instead of the 20% erroneous refund penalty. Criminal prosecution is also possible for fraudulent claims. This is why the IRS is focusing on promoter-filed claims.