IRS ISSUES ERC GUIDANCE
In November, the passage of the Infrastructure Investment and Jobs Act retroactively eliminated the Employee Retention Credit (ERC) for wages paid after October 1, 2021, for most employers. This retroactive change left businesses initially eligible for the credit in an uncertain position. As a result, some employers had already started reducing payroll tax deposits for the quarter or filed for an advance credit on Form 7200.
The Internal Revenue Service issued guidance in notice 2021-65, this notice addresses concerns about the failure to deposit penalties and provides some guidance to employers on what to do next.
EMPLOYERS WHO RECEIVED ADVANCE PAYMENTS
Those that requested advance ERC on Form 7200 and received the payment will have until January 31, 2022, to return the advance. In addition, the IRS will be updating the 941/943 forms and instructions to address how to specifically report the repayment.
EMPLOYERS WHO REDUCED PAYROLL TAX DEPOSITS
Employers that reduced deposits for wages paid during the fourth calendar quarter of 2021 in anticipation of the ERC will not be subject to a failure to deposit penalty if all of the following criteria are met:
- The employer reduced deposits in anticipation of the Employee Retention Credit.
- The employer deposits the amounts initially retained on or before the relevant due date for wages paid on December 31, 2021 (regardless of if the employer paid wages on that date). The deposit due date is based on the deposit schedule of the employer. For example, a monthly depositor would have a due date of January 15, 2022, for the tax liability.
- The employer reports the tax liability resulting from the termination of the ERC on the applicable payroll tax return for the fourth quarter of 2021. In addition, the IRS will be updating the 941/943 forms and instructions to address how to specifically report the tax liability.
Failure to deposit penalties are not waived for employers if they reduce deposits on payrolls paid after December 20, 2021.
At this time, the notice doesn’t provide specific procedures on how the amounts should be repaid and only suggests employers refer to payroll form instructions. Additional information will be provided as it becomes available.
THIRD-PARTY PAYROLL SERVICES
Employers that utilize a third-party payroll service to process payroll and make deposits are encouraged to contact their administrator directly. Each provider will have slightly different procedures to remit the catch-up payments and address the additional reporting requirements on the 941 for the fourth quarter of 2021. To complicate matters, form and instruction revisions will need to be issued by the IRS before providers can formally set their procedures.
For additional information, contact us. We look forward to speaking with you soon.