IRS ISSUE GUIDANCE REGARDING THE RETROACTIVE TERMINATION OF THE EMPLOYEE RETENTION CREDIT

The Internal Revenue Service has issued guidance for the employers regarding the retroactive termination of the employee retention credit. The internal revenue services issued a notice that provides the complete guideline to the employers. On November 15, 2021, the Infrastructure Investment and Jobs Act was enacted as per amendment the employee retention credit will apply on only those waged that paid before October 1, 2021, but with a condition unless the employer is a recovery startup business.

The notice of IRS is specifically for those employers that paid the wages after September 30, 2021, and received the advance payment of the employee retention credit or reduced employment tax deposits in anticipation of the credit for the fourth quarter of 2021 but are now ineligible for the credit due to the change in the law.

The notice of IRS also provides the complete guideline on applying the rules to the recovery startup business during the fourth quarter of 2021.

The IRS has issued the following guidelines to the employers that can safe them from any type of penalties;

1. Those employers who have received the advance payments for fourth-quarter wage of 2021 should repay the received advance payment by the due date of employment tax return otherwise the employers can face the penalties. The only solution to avoid the penalty is to repay the received advance payment.

2. The Employers (excluding RSBs) that reduced employment tax deposits before or on Dec. 20, 2021, for wages paid during the fourth calendar quarter of 2021 in anticipation of receiving the employee retention credit (ERC) will not legally liable for the failure to deposit penalty if they meet the following conditions;

2.1. The employer reduced deposits in anticipation of the employee retention credit (ERC) consistent with the rules in Notice 2021–24.

2.2. The employer deposits the amounts initially retained in anticipation of the employee retention credit (ERC) on or before the relevant due date for wages paid on Dec. 31, 2021 (regardless of whether the employer actually pays wages on that date). Deposit due dates will vary based on the deposit schedule of the employer.

2.3. The employer reports the tax liability resulting from the termination of the employer’s employee retention credit (ERC) on the applicable employment tax return or schedule that includes the period from Oct. 1, 2021, through Dec. 31, 2021.

The termination of the employee retention credit on the wages paid in the fourth quarter of 2021 is for the employers that do not recover the startup business. The penalties cannot be waived for these employers if the employers reduce deposits after December 20, 2021.

The IRS also provided a complete guideline that if an employer is not qualified for the relief under the IRS notice then the employer can reach to the IRS with an explanation the IRS will consider reasonable cause relief.

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A blog created by CPE Warehouse to provide all tax professionals with relevant updates and information. Subscribe to stay up to date and learn more!