What Employers Need To Know About the Amended Employee Retention Credit

Employers have new guidance from the IRS about the retroactive termination of the Employee Retention Credit. The Infrastructure Investment and Jobs Act, enacted on November 15, 2021, amended the law so that the Employee Retention Credit applies only to wages paid before October 1, 2021, for employers other than recovery startup businesses.

tax cpaNotice 2021-65 details guidance for employers that paid wages after September 30, 2021, and either received an advance payment of the Employee Retention Credit for those wages or reduced employment tax deposits in anticipation of the credit for the fourth quarter of 2021 but are now ineligible for the credit. The notice also provides guidance regarding how the rules apply to recovery startup businesses during the fourth quarter of 2021.

Employers who received advance payments for fourth quarter wages of 2021 (and are not recovery startup businesses) will avoid failure to pay penalties if they repay those amounts by the due date of their applicable employment tax returns.

Employers that reduced employment tax deposits (and are not recovery startup businesses) on or before December 20, 2021, for wages paid during the fourth calendar quarter of 2021 in anticipation of the Employee Retention Credit will not be subject to a failure to deposit penalty with respect to the retained deposits if the following applies:

  1. The employer reduced deposits in anticipation of the Employee Retention Credit, consistent with the rules in Notice 2021-24,
  2. The employer deposits the amounts initially retained in anticipation of the Employee Retention Credit on or before the relevant due date (will vary based on the deposit schedule of the employer) for wages paid on December 31, 2021 (regardless of whether the employer actually pays wages on that date), and
  3. The employer reports the tax liability resulting from the termination of the employer’s Employee Retention Credit on the applicable employment tax return or schedule that includes the period from October 1, 2021, through December 31, 2021. Employers should refer to the instructions to the applicable employment tax return or schedule for additional information on how to report the tax liability.

The IRS will not waive failure-to-deposit penalties for such reductions after Dec. 20, 2021. For employers that do not qualify for relief, the IRS will consider reasonable cause relief if the employers reply to a notice about a penalty with an explanation.

Questions

If you have questions about the amended Employee Retention Credit, contact us to discuss your specific situation.

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