Employers that received an advance payment of the employee retention credit (ERC) or reduced their employment tax deposits in anticipation of receiving the ERC for the fourth calendar quarter of 2021 may repay or deposit the taxes without penalty under guidance issued Monday by the IRS (Notice 2021-65).
The guidance became necessary when the ERC was terminated a quarter early by the enactment of the Infrastructure Investment and Jobs Act, P.L. 117-58, at the end of the third calendar quarter of 2021 (for employers other than recovery startup businesses under Sec. 3134(c)(2)).
Section 80604 of the Infrastructure Act amended Sec. 3134(n) to provide that the ERC under Sec. 3134 applies to wages paid after June 30, 2021, and before Oct. 1, 2021, or in the case of wages paid by an eligible employer that is a recovery startup business, Jan. 1, 2022. As originally enacted by the American Rescue Plan Act, P.L. 117-2, Dec. 31, 2021, was the end point for wages paid by all eligible employers.
An advance payment of any portion of the ERC in excess of the amount to which a taxpayer is entitled is an erroneous refund that the employer must repay and, but for Monday's notice, is subject to penalties for failure to pay the corresponding employment taxes. Employers that received such advance payments may repay them by the due date of their applicable employment tax return that includes the fourth calendar quarter of 2021 and so avoid failure-to-pay penalties.
Likewise, employers that...
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