Those who received advance payments of the employee retention credit (ERC) for the fourth calendar quarter of 2021 or reduced their employment tax deposits in anticipation of the ERC can receive a refund or deposit of the taxes without penalty, according to the IRS.
After the ERC was terminated a quarter early by the Infrastructure Investment and Jobs Act, Public Law 117-58 (for employers other than recovery startup businesses), at the end of the third calendar quarter of 2021.
Under Sec. 3134(n), Section 80604 of the Infrastructure Act provides that the ERC under Sec. 3134 applies to wages paid after June 30, 2021, and before Oct. 1, 2021. This applies if wages are paid by an eligible employer that is a recovery startup business, Jan. 1, 2022. The American Rescue Plan Act, Public Law 117-2, Dec. 31, 2021, was the end point for wages received by all eligible employers.
Any portion of the ERC paid in advance in excess of the amount to which a taxpayer is entitled is an erroneous refund. The employer must return and, but for Monday’s notice, is subject to penalties for failure to pay the corresponding employment taxes. By reimbursing these advance payments by their deadline for filing their employment tax returns, which includes the fourth calendar quarter of 2021, employers avoid failure-to-file penalties.
In addition, employers that reduced their deposits required with respect to wages paid on or after Oct. 1, 2021, but before Jan. 1, 2022, by the amount of an ERC they expected to claim (and are not recovery startup businesses) must deposit those taxes. For non-deposits due before Dec. 20, 2021, penalties may be waived, but only for deposits due before Dec. 20, 2021.
After Dec. 20, 2021, the IRS will not waive penalties associated with such reductions.