Erc Is Destined

In accordance with the Infrastructure Investment and Jobs Act, which has already been approved by both houses of Congress and is expected to be signed into law by President Biden, the ERC will now officially come to an end on September 30th, despite the fact that its original expiration date was set for December 31, 2021. The ERC is a refundable tax credit against some employment taxes that may be used to eligible wages. It was introduced in the early stages of the COVID-19 epidemic to assist businesses who were harmed by shutdowns and closures in the process of retaining their employees.

Bear in mind the following:

Employers who have already reduced their payroll tax deposits for the fourth quarter in anticipation of an ERC, or who have requested an advanced ERC payment through Form 7200, will be required to make an immediate catch-up payment for the outstanding tax in order to mitigate the accumulation of interest on the late payment of the payroll tax deposits. Businesses that decreased their payroll tax deposits in preparation for obtaining an ERC for the fourth quarter are likely to receive penalty relief from the Internal Revenue Service (IRS).

Is There a Possibility That Your Business May Be Eligible to Receive a Payroll Tax Credit That May Be Refundable Due to Employee Absences Caused by the COVID-19 Vaccination?

The American Rescue Plan (ARP) was signed into law by President Biden on March 11, 2021, and he recently brought attention to a new clause that was included in the law. Both the Emergency Paid Sick Leave Act (EPSLA) and the Families First Coronavirus Response Act (FFCRA), both of which were signed into law by former President Trump on March 18, 2020, were enlarged as a result of the ARP, as will be described further below. This amendment to EPSLA applies to employers who have less than 500 employees on staff.

An employer is able to claim a payroll tax credit equivalent to one hundred percent of an employee’s qualifying sick leave wages under the Emergency Paid Sick Leave Act. This credit can be used to an employee who is paid eligible sick leave wages.

If the employee is directly affected by COVID-19, is experiencing symptoms, and is seeking a medical diagnosis for COVID-19, then the qualified sick leave wages are equal to one hundred percent of the employee’s wages, subject to a $511 per day or $5,110 total for 10 days limitation. If the employee is not directly affected by COVID-19, then the qualified sick leave wages are equal to zero.

The ARP extended and expanded the provisions of this credit to include employees who are experiencing symptoms, seeking a medical diagnosis or awaiting the results of the COVID test, or who are in the process of obtaining or recovering from the effects of any COVID-19 immunization. This credit is now available to employees who are experiencing symptoms, seeking a medical diagnosis or awaiting the results of the COVID test.

When it comes to extending the credit, EPSLA resets the 10-day limitation, which implies that the employer has two different time periods during which they can make a claim for this credit. The original credit that was written under the FFCRA can be claimed by the employer from the time it was enacted until March 31, 2021. After that, the employer can claim the credit once more beginning April 1, 2021 and continuing through September 30, 2021 for an additional 10 days on the same employee if necessary. Only employees who were or will be vaccinated after March 31, 2021 and before September 30, 2021 are eligible for the expansion that covers employees acquiring or recovering from the effects of any COVID vaccine. This provision will take effect on October 1, 2021.

What Could the Value of This Credit Be to an Employer Who Qualifies for It?

For instance, an employer has 150 employees, of which 90 percent receive the vaccine, with each dosage being received between April 1, 2021 and September 30, 2021. The majority of employees were required to undergo the two-dose protocol and take a full day off work for each vaccine. One third of the staff employees experienced responses, which resulted in them missing another day of work. As a result, 135 days were lost owing to the vaccine, and another 50 days were lost as a result of a response to the vaccine. A refundable payroll tax credit in the amount of $55,500 (185 times $300) can be claimed on the payroll tax return if it is assumed that the average daily payroll is $300.

The preceding illustration is meant to demonstrate that even a little amount of time off can result in a credit of more than $50,000. In the event that the typical payroll was $500 per day, the credit would increase to $92,500. Even for employers of a greater size, the credit can be worth tens or even hundreds of thousands of dollars.

Similar to what is provided to employees by their employers, those who are self-employed have the ability to claim claims for increased sick leave and family leave credits. The provisions are, for the most part, the same; the one major difference is that in order to establish the credit limitations for taxpayers who are self-employed, the credit will be calculated based on the taxpayer’s annual net earnings divided by 260. The ARP extended the time restriction to a total of sixty days, which cost a total of twelve thousand dollars, or two hundred dollars every day.

It is essential to have a solid understanding of how all of these programs interact with one another. This is necessary due to the fact that employers are not permitted to “double dip” by claiming this credit as well as PPP loans, the Employee Retention Credit, or any other payroll tax credits.

The Internal Revenue Service has issued guidance for employers that have either decreased their tax deposits or claimed advances on now-unavailable Q4 2021 ERCs.

Notice 2021-65, which was just issued by the Internal Revenue Service, offers employers some guidance with regard to the removal or early expiration of the employee retention credit in the fourth quarter of 2021. (ERC).

Initially, wages and health plan expenses eligible for the ERC were those paid prior to January 1, 2022. However, with the passage of the Infrastructure Investment and Jobs Act earlier this month, the availability of the ERC for the majority of employers has been terminated for the entirety of the fourth quarter of 2021. (Employers that are classified as “recovery startup businesses,” or “RSBs,” will continue to be eligible for ERCs for wages and/or health plan expenses paid through December 31, 2021, and they are exempt from the provisions of the Notice; any use of “employers” throughout this alert can be read as “employers that do not qualify as RSBs.”)

Despite the fact that the version of the Infrastructure Act that was passed by the Senate in August included the early termination of the availability of the ERC and provided an indication that the ERC could be eliminated for the fourth quarter of 2021, some employers have taken an aggressive stance toward the elimination of the ERC. 1) They continued to reduce their federal employment tax deposits in anticipation of ERCs for wages and/or health plan expenses paid through December 31, 2021, and/or 2) They filed Form 7200 to claim advances on their anticipated ERCs for wages and/or health plan expenses paid through December 31, 2021. These businesses have access to guidance through the notice 2021-65.

The repayment of any money made in advance

Employers who used Form 7200 (“Advance payment of employer credits due to COVID-19”) to claim advances on anticipated ERCs for the fourth quarter of 2021 are required to repay those amounts by the deadline for filing federal employment tax returns for the fourth quarter of 2021, which is January 31, 2022. Failure to do so may result in failure to deposit penalty.

For more details, the Notice refers the taxpayer to the instructions that may be found in Form 941, which is the “Employer’s QUARTERLY federal tax return.” Taxpayers who filed Form 7200 and received advanced payments of anticipated ERC credits are required to include the erroneously received credit on Form 941, Part 1, Line 13h for the fourth quarter of 2021. The revised instructions for Form 941 were released on the 16th of December by the IRS in draft form. (We will make any necessary updates to this page in the event that any modifications are made to the instructions before they are finished.) To reiterate, any overdue amount must be paid in full by the 31st of January, 2022.

Failure to deposit fines

Employers who lowered their federal employment tax deposits during the fourth quarter of 2021 for wages and/or health plan expenditures paid during that quarter will not be subject to failure to deposit penalties for such reductions if any of the following conditions are met:

  1. The employer decreased its deposits in preparation for an ERC, in accordance with the guidance that had been provided earlier in Notice 2021-24; and 2.
  2. The employer makes the required deposit of federal employment taxes payable on or before the applicable due date for wages paid on December 31, 2021; and
  3. The employer fills out Form 941 for the fourth quarter of 2021 and discloses the tax obligation. According to the draft released by the IRS on December 16, this responsibility has to be reported on Form 941, Line 16, Month 3. The obligation must be reported on Schedule B “on the appropriate day or days in December (month 3) for the fourth quarter of 2021” if the taxpayer makes deposits every other week.

Employers who decrease their federal employment tax deposits after December 20, 2021 in anticipation of an ERC are cautioned by the Notice that the Internal Revenue Service will not waive the failure to deposit penalties in such cases.

A further provision of the Notice states that employers who may not be eligible for penalty relief in accordance with the aforementioned guidelines may respond to a penalty notice by providing an explanation, in which case the IRS will consider penalty abatement in accordance with reasonable cause relief.

So, what do we all think?

Employers who are not RSBs but who have kept otherwise necessary federal employment tax deposits and/or claimed advances by submitting Form 7200 are obligated to immediately engage with their payroll providers to implement the activities stated in the Notice. RSBs are excepted from this requirement.

Leave a Reply