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IRS Guidance on Businesses that Received 4th Quarter ERC Advanced Payments

December 13, 2021
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IRS released additional Employee Retention Credit (ERC) on December 6, 2021. This guidance is issued in the wake of the Infrastructure Investment and Jobs Act enacted on November 15, 2021. These two documents clarify which companies are eligible for the ERC in quarter four of 2021 and some action points for companies who were expecting to be eligible and now are not.

The only businesses that are eligible for the ERC in the 4th quarter of 2021 are companies that qualify as recovery start-up businesses. The Infrastructure Investment and Jobs Act officially terminates eligibility for any businesses claiming the ERC based on a significant decline in gross receipts or the full or partial government shut-down in the fourth quarter of 2021.

Due to this change, there are a few deadlines to keep in mind if you anticipated a 4th quarter ERC. For quarters where a company was eligible for the ERC based on a significant decline in gross receipts or a full or partial government shut-down the company had two options to increase their cash flow in anticipation of receiving the credit: 1. To apply for an advance refund of the credit expected, 2. To reduce their deposits of employment taxes for the amount of ERC expected to be received.

Received an Advance of ERC for Q4 2021

A company who chose to apply for an advance of the ERC for quarter four 2021 will need to repay that advance by the due date of the applicable employment tax return for quarter four of 2021. These tax returns are due January 31, 2022 for the fourth quarter of 2021.

Reduced Payroll Withholding in Q4 2021 Due to ERC

If a company chose to reduce their employment tax deposits in expectation of receiving the ERC in the fourth quarter of 2021, they will need to make up these deposits in order to avoid failure to deposit penalties. The failure to deposit penalty will be reinstated as of December 20, 2021 and companies will have until the relevant due date for wages paid on December 31, 2021 to make their deposits and avoid the penalty. This due date is based on the deposit schedule of the employer and is relevant whether the employer pays wages on December 31, 2021 or not.

Haven’t Claimed the ERC Yet?

Even though the ERC is no longer available for most companies after September 30, 2021, a company who has not yet claimed the ERC for any qualifying quarters has the ability to retroactively amend the relevant employment tax returns for any quarter where the business may be eligible.

If you have any questions, please feel free to contact us.

About the Author

Nick Preusch, CPA, JD, LLM, MSA

Nick joined YHB in 2020 with over 15 years of experience in the industry. Nick is a graduate of Carthage College with a BS in Accounting and Business, the University of Connecticut with an MA in Accounting, Case Western Reserve University with a JD, and Georgetown University with an LLM in taxation. Nick has also worked with the Internal Revenue Service as a Revenue Agent and an Attorney with the IRS Office of Professional Responsibility.

Nick’s expertise includes helping high wealth individual and large business entities with complex tax compliance, along with specializing in international, non-for-profit tax issues, and tax ethics issues.

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