IRS Provides Penalty Relief for Taxpayers for Retroactive ERTC

The IRS has provided relief for taxpayers who owe additional income tax because their deduction for qualified wages was reduced by a retroactively-claimed employee retention tax credit if the taxpayer is unable to pay the additional tax because the ERTC refund has yet to be received. The IRS acknowledged that this often occurs because of its own backlog in processing Forms 941-X. Under current law, the employer must reduce its income tax reduction for the qualified wages by the amount of ERTC claimed in the tax year where the wages were paid or incurred (2020 or 2021). If the taxpayer claimed the credit retroactively, they may not have received their refund. Taxpayers in this situation can be eligible for penalty relief for inability to pay their tax liability if they can show reasonable cause, rather than willful neglect, under Notice 2021-49 provisions. For more information on the ERTC, visit Tax Facts Online. : Q . Q is updated.