Temporary Regulations on Excess Employment Tax Credit

The IRS and Treasury Department issued temporary and proposed regulations to reconcile advance payments of refundable employment tax credits provided under the Families First Coronavirus Response Act and the CARES Act as well as recapture the benefit of the credits.

tax advisorsThe temporary regulations stipulate that erroneous refunds of these employment tax credits are treated as underpayments of employment taxes. The IRS can assess any portion of these credits erroneously credited, paid or refunded in excess of the amount allowed as if those amounts were employment tax liabilities.

This process allows the IRS to recover the amounts, while preserving administrative protections to taxpayers regarding contesting their tax liabilities and avoiding unnecessary costs and burdens associated with litigation. The procedures will apply in the normal course of processing employment tax returns that report advances in excess of claimed credits and in examining returns for excess claimed credits.

These temporary regulations apply to all paid leave credit refunds advanced or paid on or after April 1, 2020, and all employee retention credit refunds advanced or paid on or after March 13, 2020. It also applies to all paid leave credits refunded on or after April 1, 2020, including advanced refunds, as well as all employee retention credits that are refunded on or after March 13, 2020, including advanced refunds.

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