The IRS has issued guidance for employers regarding the retroactive termination of the Employee Retention Credit. The Infrastructure Investment and Jobs Act, which was enacted on Nov. 15, amended the law so that the Employee Retention Credit applies only to wages paid before Oct. 1, 2021, unless the employer is a recovery startup business.
Notice 2021-65 applies to employers that paid wages after Sept. 30, 2021 and received an advance payment of the Employee Retention Credit for those wages or reduced employment tax deposits in anticipation of the credit for the fourth quarter of 2021 but are now ineligible for the credit because of the change in the law. The notice also provides guidance on how the rules apply to recovery startup businesses during the fourth quarter of 2021.
Employers who Received Advance Payments
Generally, employers that are not recovery startup businesses and received advance payments for fourth quarter wages of 2021 will avoid failure to pay penalties if they repay those amounts by the due date of their applicable employment tax returns.
Employers who Reduced Employment Tax Deposits
Employers that reduced deposits on or before Dec. 20, 2021, for wages paid during the fourth calendar quarter of 2021 in anticipation of the Employee Retention Credit and that are not recovery startup businesses will not be subject to a failure to deposit penalty with respect to the retained deposits if:
Because of the termination of the Employee Retention Credit for wages paid in the fourth quarter of 2021 for employers that are not recovery startup businesses, failure to deposit penalties are not waived for these employers if they reduce deposits after Dec. 20, 2021.
If an employer does not qualify for relief under this notice, it may reply to a notice about a penalty with an explanation and the IRS will consider reasonable cause relief.