"So Long, Employee Retention Credit..."
While the Infrastructure Act (Infrastructure Investment and Jobs Act, pub. L. 117-58, 135 Stat. 429 (2021) could arguably be said to have created some cool things, it came with a lot of compromises. One of the big areas of compromise was to lessen, yes, I said lessen, some of the government assistances that were made available by the CARES, Relief, Families First, and American Rescue Plan Acts. One such reduction was to end the Employee Retention Credit for most employers in the United States.
The Employee Retention Credit was a refundable tax credit made available to employers for certain payroll taxes for tax years 2020 and 2021 through provisions of each successive act. Employers were able to apply for and receive advanced payments of these credits.The American Rescue Plan extended the eligibility to claim these credits against payroll taxes through the fourth quarter of 2021. However, the recently passed Infrastructure Act retroactively ended this credit for most employers for wages paid after September 30, 2021. This means that the credit will not be available for the fourth quarter 2021 pay period.
Let's talk about what employers are impacted by this change. First, if you own a Recovery Startup Business, you can stop reading. The Infrastructure Act left this credit in place for Recovery Startups. To be a Recovery Startup Business, a business must have began operations after February 15, 2020, maintain average annual gross receipts of less than $1 million, and have at least one employee that is not a 50% or greater owner of the business. All other employers who previously qualified for the credit no longer qualify.
So, what if an employer received advanced payments of the credit for the fourth quarter? Well, put simply, they have to repay that credit. The IRS considers this equal to an erroneous refund. These credits need to be repaid by the due date of the employer's 4th quarter payroll returns, which for most employers is the 31st of January 2022. Failure to repay these advanced payments by the due date could result in failure to pay penalties for the employer.
Some employers who did not request advanced payment of the credits may have taken the option to reduce payroll tax deposits (also called Federal Tax Deposits) in anticipation of the credits. Just like employers who have to repay the advanced payments, these employers are going to need to catch up those deposits for any wages that were paid between October 1, 2021 and December 31, 2021. The due date for catching these deposits up is the due date of their payroll tax deposits for the applicable pay period ending December 31, 2021.
If you use a payroll service, you should contact them to determine what steps are being taken if they have not already notified you and you believe you either received advanced payments or retained payroll tax deposits in anticipation of being able to take the Employee Retention Credit for the fourth quarter of 2021. If you handle payroll yourself, it may be wise to speak with a tax professional such as your accountant or tax attorney so that you do not incur penalties for failure to pay on time.
***DISCLAIMER: The information contained in this post are for informational purposes only. Nothing contained in this post may be construed to create an attorney -client relationship between JRB Law, LLC or Jennifer Brugh and the reader. JRB Law, LLC assumes no responsibility for any changes to the law which may render this information no longer accurate.***