The Employee Retention Credit (ERC) was a valuable tax credit that helped employers survive the COVID-19 pandemic. A new law has retroactively terminated it before it was scheduled to end. It is now only applicable through September 30, 2021 (rather than December 31, 2021) — unless the employer is a “recovery startup business.”
The Infrastructure Investment and Jobs Act, which was signed by President Biden on November 15, doesn’t have many tax provisions but this change is important for some businesses.
What the termination may mean for you
Employers who anticipated receiving the ERC based on payroll taxes after September 30 but before the law was signed and retained payroll taxes will need to repay those amounts. We are currently waiting on guidance to determine how and when to repay those taxes.
Those employers may also be subject to a 10% penalty for failure to deposit payroll taxes withheld from employees unless the IRS waives the penalties. The American Institute of Certified Public Accountants (AICPA) is asking Congress to direct the IRS to waive payroll tax penalties imposed as a result of the ERC sunsetting.
What is next?
The IRS is expected to issue guidance to assist employers in handling any compliance issues. If you submitted payroll taxes starting October 1, 2021, you are likely in the clear. However, if you would like to discuss your situation or have additional questions, contact Cindy McSwain using the information below.
NOTE: Any advice contained in this material is not intended or written to be tax advice, and cannot be relied upon as such, nor can it be used for the purpose of avoiding tax penalties that may be imposed by the IRS or states, or promoting, marketing or recommending to another party any transaction or matter addressed herein.
Senior Vice President
Cindy McSwain leads AGH’s outsourcing services group. Her team provides payroll, accounting, funds disbursement, controller, and other financial outsourcing services to numerous clients throughout the U.S. Prior to joining the outsourcing group, Cindy served AGH’s audit clients for 10 years, working with a wide range of middle-market, closely held and family-owned organizations.
Her current clients cross many industry sectors, including manufacturing and distribution, restaurants, retailers, medical and not-for-profit. She has participated in numerous SEC filings and public registrations and has experience in mergers and acquisitions. Cindy is a certified public accountant and a member of both the American Institute of Certified Public Accountants and the Kansas Society of Certified Public Accountants.