The IRS has provided relief (Notice 2021-65) for taxpayers who underpaid employment tax deposits due to the retroactive termination of the employee retention credit (ERC) by the Infrastructure Investment and Jobs Act (the “Infrastructure Act”).
The Infrastructure Act ended the ERC with for wages paid after Sept. 30, 2021, for all employers other than recovery startup businesses, but was not enacted until Nov. 15, 2021. Notice 2021-65 provides relief for employers who reduced employment tax receipts or received an advance payment in anticipation of claiming the ERC for wages after Sept. 30, 2021—but are now ineligible for the credit due to the change in the law. The notice also provides guidance regarding how the rules apply to recovery startup businesses during the fourth quarter of 2021.
Employers that received advance payments for 2021 fourth quarter wages by filing Form 7200 can avoid failure-to-pay penalties if they repay those amounts by the due date of their applicable employment tax returns for the 2021 fourth quarter, which, for Form 941 filers are generally due no later than Jan. 31, 2022. Employers that reduced employment tax deposits on or before Dec. 20, 2021, for wages paid during the 2021 fourth quarter in anticipation of the ERC will not be subject to the failure to deposit penalty with respect to the retained deposits if, among other requirements specified in the notice, employers deposit the amounts initially retained in anticipation of the ERC on or before the relevant due dates for wages paid on Dec. 31, 2021, regardless of whether the employer actually pays wages on that date. The IRS noted that the applicable deposit due dates will vary based on the deposit schedule for the employer.
The notice also provides that if an employer does not qualify for relief under the terms of the notice, the employer may reply to a notice about a penalty with an explanation and the IRS will consider reasonable cause relief.
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