IRS processing delays and federal policy changes are creating headaches for businesses and nonprofits using a popular wage subsidy that was designed to keep workers on payrolls as the Covid-19 pandemic strained many employers.

The wait for employers can be as much as six to 10 months for the Internal Revenue Service to process claims for the employee-retention tax credit, business owners, accountants and payroll providers say. That is forcing them to dig deeper into reserves and slowing their recovery.