INSIGHTS AND RESOURCES
IRS releases guidance on Q4 removal of employee retention credit
TAX ALERT |
Authored by RSM US LLP
The Infrastructure Investment and Jobs Act passed in November ended the employee retention credit (ERTC) early, changing the eligible wages to only those paid before Oct. 1, 2021 rather than Jan. 1, 2022 as previously expanded in the American Rescue Plan Act. This change does not apply to recovery startup businesses.
Many businesses were filing for this credit on quarterly Form 941, or retroactively on Form 941-X, and thus, are not be able to file for the fourth quarter. Some businesses, though, may have been holding payroll tax deposits in anticipation of fourth quarter credits as prior guidance allowed. The IRS has now released Notice 2021-65 (the Notice) to provide guidance for those employers to make adjustments for the taxes now owed for the fourth quarter that were not previously anticipated.
Specifically, the Notice provides:
- Employers who already received an advance payment of the fourth quarter credit, and who are no longer eligible for the fourth quarter, must repay the amount by the due date for the fourth quarter employment tax return or be subject to failure to pay penalties.
- Employers who were following prior guidance to reduce fourth quarter deposits in anticipation of a credit, and who are no longer eligible for a credit in the fourth quarter, will not be subject to failure to deposit penalties for deposits due on or before Dec. 20, 2021 if the employer deposits such amounts by the due date for wages paid on Dec. 31, 2021, according to the employer’s deposit schedule and reports the liability on the fourth quarter employment tax return per the instructions. It is important to note if this liability would result in more than $100,000 due on Dec. 31, 2021, then the next day rule will apply.
Employers who do not qualify for penalty relief under the Notice may provide a reasonable cause explanation upon receipt of an IRS notice of a failure to deposit penalty.
This Notice has been anticipated since legislation to remove the credit drifted into the fourth quarter itself. Some companies had speculated a longer grace period through the first quarter of 2022 may apply, but this is not the case. Employers should carefully review the guidance and coordinate with payroll providers, where applicable, to address the deadlines for penalty relief.
Call us at +1 213.873.1700, email us at firstname.lastname@example.org or fill out the form below and we'll contact you to discuss your specific situation.
This article was written by Anne Bushman, Karen Field and originally appeared on 2021-12-06.
2021 RSM US LLP. All rights reserved.
The information contained herein is general in nature and based on authorities that are subject to change. RSM US LLP guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. RSM US LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein. This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer.
RSM US Alliance provides its members with access to resources of RSM US LLP. RSM US Alliance member firms are separate and independent businesses and legal entities that are responsible for their own acts and omissions, and each is separate and independent from RSM US LLP. RSM US LLP is the U.S. member firm of RSM International, a global network of independent audit, tax, and consulting firms. Members of RSM US Alliance have access to RSM International resources through RSM US LLP but are not member firms of RSM International. Visit rsmus.com/about us for more information regarding RSM US LLP and RSM International. The RSM logo is used under license by RSM US LLP. RSM US Alliance products and services are proprietary to RSM US LLP.
Vasquez & Company LLP is a proud member of the RSM US Alliance, a premier affiliation of independent accounting and consulting firms in the United States. RSM US Alliance provides our firm with access to resources of RSM US LLP, the leading provider of audit, tax and consulting services focused on the middle market. RSM US LLP is a licensed CPA firm and the U.S. member of RSM International, a global network of independent audit, tax and consulting firms with more than 43,000 people in over 120 countries.
Our membership in RSM US Alliance has elevated our capabilities in the marketplace, helping to differentiate our firm from the competition while allowing us to maintain our independence and entrepreneurial culture. We have access to a valuable peer network of like-sized firms as well as a broad range of tools, expertise and technical resources.
For more information on how Vasquez & Company LLP can assist you, please call +1 213.873.1700.
Subscribe to receive important updates from our Insights and Resources.