Tax & Assurance Guidance

IRS Guidance: Retroactive ERC Termination

Posted on December 16, 2021 by

Sarah Russell

Sarah Russell

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The IRS provided much-awaited guidance regarding penalty waivers for taxpayers who qualified for Employee Retention Credits (ERC) and did not remit payroll taxes before the credit was retroactively terminated after September 30.

Repayment of Advance Payments for the ERC

The IRS stated that employers who received advance payments of the ERC for wages paid in the 4th quarter of 2021 will avoid tax penalties if employers repay those amounts by the due date of their applicable employment tax returns.

Safe Harbor for Reduced Employment Tax Deposits

For employment tax deposits due on or before December 20, 2021 for wages paid between October 1, 2021 and January 1, 2022, an employer will not be subject to the failure to deposit penalty if:

  1. The employer reduced its deposits in anticipation of the ERC
  2. The employer deposits the amounts initially retained in anticipation of the ERC on or before the relevant due date for wages paid on December 31, 2021
  3. The employer reports the tax liability resulting from the termination of the ERC on the applicable employment tax return or schedule that includes the period from October 1, 2021 through December 31, 2021

Employers who do not qualify for the safe harbor relief and receive a notice of penalty from the IRS should respond to the notice with a reasonable cause explanation of why they failed to deposit such employment taxes. For more information, please contact us.

Sarah Russell

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Sarah leads the firm’s domestic and international tax practice and is known for the practical & passionate way she advocates for clients.

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