IRS Releases Guidance on Early Termination of Employee Retention Tax Credit, Dec. 16, 2021

The IRS has now released guidance on how it will handle the early termination of the employee retention tax credit, which is no longer available for the fourth quarter of 2021. Employers who received advance payment of the ERC for fourth quarter wages can avoid penalties for failure-to-pay if they repay the amount by the due date of their employment tax returns. Employers who reduced employment tax deposits on or before December 20, 2021 for fourth-quarter wages in reliance on the ERC will not be subject to penalties for failure-to-deposit if (1) the employer reduced deposits in anticipation of receiving the ERC under the rules in Notice 20214, (2) the employer deposits the amounts retained on or before the due date for wages paid on December 31, 2021 (regardless of whether the employer actually pays the wages on that date), and (3) the employer reports tax liability resulting from the end of the ERC on the employment tax return or schedule including the period from October 1, 2021 through December 31, 2021. Failure to deposit penalties will not be waived if the employer reduces deposits after December 20, 2021. Employers who do not qualify for relief under these rules can reply to any notice of a penalty with an explanation, and the IRS will consider whether to grant reasonable cause relief. For more information on the ERC, see Q .