Avoid penalties from retroactive Employee Retention Credit repeal - Spidell

Avoid penalties from retroactive Employee Retention Credit repeal


In light of the retroactive repeal of the Employee Retention Credit (ERC)* for the fourth quarter of 2021 for all taxpayers (except recovery startup businesses), businesses that already claimed the advance credit or reduced their payroll deposits have been wondering whether they will be subject to penalties.

In Notice 2021-65, the IRS has stated that penalties will not be imposed against employers who:

  • Received advance payments for fourth quarter 2021 wages if they repay the advance payments by the due date of their applicable employment tax returns; or
  • Reduced fourth quarter 2021 employment tax deposits prior to December 21, 2021, if they:
    • Reduced deposits in anticipation of the ERC, consistent with the rules outlined in Notice 2021-24;
    • Deposit the amounts initially retained in anticipation of the ERC on or before the relevant due date for wages paid on December 31, 2021 (regardless of whether the employer actually pays wages on that date); and
    • Report the tax liability resulting from the termination of the employer’s ERC on the applicable employment tax return or schedule that includes the period from October 1, 2021, through December 31, 2021.

Failure-to-deposit penalties will not be waived for these employers if they reduce deposits after December 20, 2021.

The full text of IRS Notice 2021-65 is available at:

www.irs.gov/pub/irs-drop/n-21-65.pdf

* The repeal was contained in the Infrastructure Investment and Jobs Act (P.L. 117-58).

Attend Spidell’s 2021/2022 Federal and California Tax Update webinar and get more information on the Employee Retention Credit. Click here and register today.