Congress Ends the Employee Retention Credit Early

President Biden signed the Infrastructure Investment and Jobs Act (IIJA) into law on November 15, 2021. One of the provisions of that legislation retroactively ended the employee retention credit (ERC) early. The credit was formerly offered to eligible employers for salaries paid through the end of 2021. Under this modification the credit ends after the 3rd quarter.

Although the Senate passed the IIJA well before the fourth quarter of 2021 started, concerns in House of Representatives triggered that chamber's vote in favor of the Act to be postponed up until late in the evening hours of November 5, 2021, over a month after the fourth quarter started, which has actually created an issue for companies who, based upon previous law, were claiming the ERC for the fourth quarter and were lowering their payroll deposits based upon the ERC.


Under the IIJA, employers are not qualified for the credit for salaries paid after September30, and hence employers should certainly have been making their typical payroll deposits throughout4th quarter. IIJA contains no provision to handle companies who were preparing to utilizethe ERC to offset payroll taxes. In the meantime, it's unclear if companies who would have qualified due to the drop in gross receipts tests or full/partial suspension of operations test and decreased their payroll tax deposits prior to passage of the Act will deal with late deposit penalties for the payroll taxes they failed to deposit

Congress or IRS should offer relief

If neither Congress nor the internal revenue service offers relief, employers will not just need to deposit payroll taxes for the fourth quarter they believed were covered by the ERC, they might likewise be subject to penalties as high as 10%.

The issues generated by this problem might be amplified as some companies had actually made the most of a CARES Act arrangement permitting the deferral of specific 2020 payroll taxes with the deferred amounts payable in 2 payments, one by December 31, 2021, and the other by December 31, 2022. This, mixed with needing to make up for the overdue fourth quarter 2021 employment taxes, might prove be a heavy hardship for smaller sized companies. Although the ERC and payroll tax deferral was apparently meant to assist small companies having a hard time because of the COVID pandemic, it might have the opposite result, by increasing the burden on these financially vulnerable businesses and possibly add to their collapse.

There is an exception to the early termination of the ERC

There is an exception to the early termination of the ERC

Recovery Start-up Businesses that will be permitted to claim the credit through the end of 2021. A recovery start-up business is a company that started carrying on any trade or business after February 15, 2020 and has gross invoices under $1,000,000 for the three-tax-year time frame ending with the tax year that precedes the calendar quarter for which the employee retention tax credit is calculated.

Let's hope the federal government does the correct thing and waives the penalties for the fourth quarter
of 2021. Please contact this workplace for additional information and support with handling this problem.

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