On December 6, the IRS issued guidance on the retroactive termination of the Employee Retention Credit (ERC) and how affected businesses should handle the new policy.
The ERC was enacted as part of the CARES Act to provide employers with refundable credits that can be claimed on qualified wages and certain other costs paid to employees. After several amendments, the ERC was expected to last through the end of 2021. The federal infrastructure law that went into effect on November 15 retroactively ended the ERC, making it applicable only for wages paid through September 31, 2021, except for recovery startup businesses.
The new guidance applies to employers who reduced payroll tax deposits or already received an advance payment in expectation of receiving the credit in the fourth quarter of 2021 but are now ineligible.
Employers who received advance payments must repay the amounts received by the due date of their employment tax returns to avoid penalties. Employers who reduced payroll taxes must deposit the amounts initially reduced and must also report the tax liability on the fourth quarter tax return.
Employers (except recovery startup businesses) who continue to reduce deposits after Dec. 20, 2021, will be subject to penalties.
The ERC provided fully refundable payroll tax credits for 70% of qualified wages for eligible businesses with 500 or fewer employees that experienced a reduction of more than 20% in gross receipts for the same quarters in 2021 and 2019.
Don’t wait until it's too late. If you have questions about the ERC or other tax questions, contact the tax team at Rodefer Moss. They understand that each situation is different and can help you determine the best plan to remain compliant with current tax law.