Insights

Time Sensitive Penalty Relief for Early-Ended
Employee Retention Credit

Recent guidance from the IRS provides further clarification for taxpayers that expected to take advantage of the employee retention credit (ERC), which was ended on October 1, by the Infrastructure Investment and Jobs Act. Notice 2021-65 details how businesses that reduced payroll tax deposits in anticipation of receiving the credit can avoid penalties.

Businesses must act quickly with less than two weeks to spare before facing penalties. Failure to deposit payroll taxes by December 20 could result in severe penalties.

The notice covers two specific scenarios for avoiding penalties:

• Businesses that received advance payments in the fourth quarter can avoid penalties simply by repaying said payments by the time their tax returns are due; or

• Deposit payroll tax amounts on or before the relevant due date for wages paid on December 31, 2021, whether wages are paid or not.

The relevant due date will be based on the employer’s deposit schedule, i.e. a monthly or semiweekly depositor. NOTE – if the amount due is $100,000 or more, then regardless of the employers’ deposit schedule, the deposit is due the next day.

Penalty waivers will not apply for any deposits that were reduced in anticipation of receiving the ERC after December 20, 2021. Keep in mind that recovery startup businesses are still eligible to claim the ERC through the fourth quarter and are exempt from the guidance.

A recovery startup business is defined as a business that:

• Began carrying on a trade or business after February 20, 2020, and

• Whose average gross receipts as calculated under 448(c)(3) does not exceed $1,000,000.

The information presented here should not be construed as legal, tax, accounting, or valuation advice. No one should act on such information without appropriate professional advice and after a thorough examination of the particular situation.