IRS: Limited time to make these tax deposits

In November, the employee retention credit (ERC) ended suddenly and retroactively. As a result, employers that’d already reduced their employment tax deposits or received advance payments of the credit for the fourth quarter of 2021 faced uncertainty.

Although the American Rescue Plan Act had given businesses until Dec. 31, 2021 to claim the ERC, a subsequent law – the Infrastructure Investment and Jobs Act – ended the tax credit earlier than expected. The cut off became Sept. 30, 2021.

Now, IRS has provided guidance in Notice 2021-65 – and that notice contains good news for businesses.

Reduced tax deposits?

An employer that reduced its fourth quarter tax deposits in anticipation of receiving the ERC can avoid failure-to-deposit penalties, according to Notice 2021-65.

Specifically, IRS addressed deposits due on or before Dec. 20, 2021, relating to wages paid on or after Oct. 1, 2021 but before Jan. 1, 2022.

Three conditions must be met to steer clear of penalties:

• The employer reduced employment tax deposits in accordance with Notice 2021-24.
• The employer deposits the amount initially retained on or before the due date for wages paid on Dec. 31, 2021. Note #1: Your due date ties into your tax deposit schedule — e.g., semiweekly, monthly. Note #2: Whether or not you actually pay wages on Dec. 31, 2021, use that date.
• Fourth quarter returns and schedules include the tax liability resulting from the termination of the ERC.

Received advance payments?

Some employers filed Form 7200, Advance Payment of Employer Credits Due to COVID-19, with IRS during the fourth quarter of 2021. Moreover, they may have already received the ERC.

Of course, with the law changes, that’s a tax credit they wouldn’t be able to claim on Form 941 or other return, after all.

Such employers can avoid failure-to-pay penalties. How? Repay the amounts by the due date of the applicable tax return, IRS explained in its guidance.