Clearing Up the Confusion of the ERC’s Retroactive Termination

As we previously informed you, the Employee Retention Credit (ERC), which was originally scheduled to expire on December 31, 2021, was retroactively ended under the Infrastructure Investment and Jobs Act as of September 30, 2021. The ERC was enacted during the pandemic to provide tax credits for certain payroll taxes of qualified businesses.

This early termination created much confusion for many employers. To accelerate the process of collecting cash for the ERC, some employers who expected a 4th quarter credit reduced their payroll tax deposits, or applied for and received advance payments for the credit. With the cancelation of the credit, these employers were suddenly underpaid on their payroll tax obligations and were unsure of the next steps until earlier this week.

Under recently issued guidance, the IRS advised that taxpayers who reduced tax deposits in anticipation of the ERC will have until the due date for a payroll tax deposit for wages paid on December 31, 2021 to remit those funds erroneously reduced. Deposit due dates will vary based on the deposit schedule of the employer.

Similarly, employers who received an advance ERC payment will have until the due date of their applicable employment tax return to repay the amounts they received to avoid a penalty assessment. Please note the due date for a 4th quarter payroll tax return is January 31, 2022.

Although a bill has been introduced in Congress for a possible reinstatement of the ERC for the 4th Quarter of 2021, currently the ERC is no longer available on a prospective basis. However, qualifying employers can still obtain the credit for the previously-eligible periods (first three quarters of 2021 and last three quarters of 2020).

If you have any questions regarding your 4th quarter payroll taxes and the ERC, or if you need help determining your credit for prior quarters, please reach out to Joseph Molloy, Martin Arking, or your Anchin Relationship Partner.