The Infrastructure Act, signed by the President on November 15, 2021, terminated the employee retention credit (ERC) early by accelerating the wage eligibility date to September 30, 2021. Unless the employer is a recovery startup business, the ERC terminated on September 30, 2021. Many employers may have requested advance payments of the credit or reduced their payroll tax deposits by the expected credit for the fourth quarter of 2021. Now that the credit doesn’t apply to the fourth quarter of 2021 these employers have underpaid their payroll taxes.
IRS has issued guidance to these employers on how to repay the underpaid taxes.
A business that requested advance payments of the ERC must repay these taxes by the due date of the employment tax return for the fourth quarter of 2021. Repayments not made by the due date are subject to failure to pay penalties.
A business that reduced its payroll tax deposits by the expected credit on or before December 20, 2021 regarding fourth quarter eligible wages must repay the underpaid taxes on or before the due date for wages paid on December 31, 2021 even if the business didn’t pay wages on that date. The business will report the tax liability on its fourth quarter payroll tax return. Repayments made by the required date will not be subject to penalties.
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