Employee Retention Credit – Early Termination and Repayment Guidance

Recent legislation retroactively terminated the Employee Retention Credit (ERC) as of September 30, 2021, for all employers not engaged in a “recovery startup business.”

For organizations that either received advance ERC payments for wages paid after September 30, or reduced employment tax deposits in anticipation of receiving the credit, the IRS has issued Notice 2021-65. This guidance provides instructions for impacted organizations that must repay the now-terminated amounts.

To avoid failure to pay penalties, employers that received an ERC payment related to fourth quarter wages must repay the amount by the due date of their applicable employment tax return that includes the fourth calendar quarter of 2021.

For employers that reduced tax deposits before December 20, 2021, in anticipation of a credit, the amount initially retained must be deposited on or before the due date for wages paid on December 31. In addition, the tax liability resulting from the termination of the ERC must be reported on applicable employment tax returns or schedules which include the fourth quarter of 2021.  The IRS will no longer waive failure to deposit penalties for employers that reduce deposits in anticipation of the employer retention credit after December 20, 2021, unless the employer is a recovery startup business.

For more information, IRS Notice 2021-65 may be accessed here. Organizations that may be impacted by the retroactive termination of the ERC should consult their CPA or professional tax counsel to ensure compliance and that potential penalties are avoided.

 


This text is provided with the understanding that ECFA is not rendering legal, accounting, or other professional advice or service. Professional advice on specific issues should be sought from an accountant, lawyer, or other professional.

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