IRS Issues Guidance on Early Termination of ERC

The IRS released guidance for employers on the early termination of the employee retention credit (ERC) if they received an advance payment or reduced deposits in anticipation of the credit [Notice 2021-65, 12-6-21]. The Infrastructure Investment and Jobs Act ended the ERC as of September 30, 2021 (the end of the third quarter) for most employers. The legislation retains the ERC for recovery startup businesses that pay qualified wages between July 1 and December 31, 2021.

Employers That Received Advance Payments

The notice states that employers that received advance payments for fourth quarter wages will avoid failure to pay penalties if they repay those amounts by the due date of their applicable employment tax returns.

Employers That Reduced Employment Tax Deposits

Employers that reduced deposits on or before December 20, 2021, for wages paid during the fourth quarter of 2021 in anticipation of the ERC will not be subject to a failure to deposit penalty if the employer:

1. Reduced deposits in anticipation of the ERC;
2. Deposits 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
3. Reports the tax liability resulting from the termination of the employer’s ERC on its employment tax return or schedule that includes the period from October 1 through December 31, 2021. Employers should refer to the instructions to the applicable employment tax return or schedule for additional information on how to report the tax liability.

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

To learn more about federal and state laws, regulations, and information to keep your company's payroll operations in compliance, check out Payroll Source Plus!

Jyme Mariani, Esq., is Managing Editor of Payroll Currently and Senior Manager of Payroll Information Resources for the APA.