IRS Implemented Tax Relief for Employers Quickly, but Could Strengthen Its Compliance Efforts
Why GAO Did This Study
The COVID-19 pandemic resulted in significant challenges to the U.S. economy, leading to business closures. The employment tax relief measures Congress passed to help businesses affected by the pandemic were estimated to result in about $237.8 billion in foregone revenue for fiscal years 2021-2031. The CARES Act includes a provision for GAO to report on the federal government’s response to the COVID19 pandemic. This report describes IRS’s efforts in implementing the employment tax provisions. The report also evaluates IRS’s plans and actions to identify compliance risks for the provisions. GAO reviewed federal laws and compared IRS’s compliance plans and procedures with selected project management practices and with tax credit eligibility requirements. GAO analyzed IRS data from employment tax returns for 2020, including data on industry sector. GAO also interviewed IRS employees and officials. What GAO Recommends GAO is making five recommendations including that IRS develop a compliance plan consistent with project management principles, document compliance processes for adjusted returns and tax credits using restricted wages, and identify ineligible entities. IRS agreed with two of the recommendations and disagreed with three. IRS said its current processes are sufficient. GAO maintains that these recommendations remain warranted.
What GAO Found
Starting in March 2020, Congress passed several laws, including the CARES Act, to provide employers with tax relief in response to the economic burden brought on by the COVID-19 pandemic. Provisions in these laws established the paid sick and family leave credits (leave credits), the Employee Retention Credit (ERC), and payroll tax deferrals. IRS implemented these provisions while facing delays caused by facility closures and other challenges. As new laws were enacted, IRS continued to revise employment tax returns and guidance. Leave credits and ERCs for 2020 totaled about $20.7 billion. Payroll tax deferrals totaled about $123.6 billion, as shown in the table. In addition, preliminary data indicate 2021 usage of leave credits and ERCs likely exceed 2020 usage.