Employee Retention Credit Update

With the release of many different economic relief packages, the federal government has phased out the Employee Retention Credit (ERC) with the passing of the recent Infrastructure Investment and Jobs Act ("IIJA").

The IRS recently released guidance on the termination of the Employee Retention Credit and how it should be handled from a tax perspective. The credit was originally meant to last until the end of 2021, but changed with the passing of the IIJA in mid-November. ERC credits will only apply to wages paid before October 1st, 2021, with the exception for employers that are classified as a recovery startup business.

In Notice 2021-65, the IRS states that businesses who received an advanced ERC payment for wages paid after September 30th, 2021, need to repay the credit received before the due date of their fourth quarter payroll tax return. If a business reduced its employment tax deposits expecting to be eligible for the ERC credit, the amount of that reduction must be deposited on or before the due date for wages paid before December 31st, 2021. The appropriate tax liability must also be reported on the 2021 tax return.

Notice 2021-65 also clarifies the ERC eligibility for a "recovery startup business." The requirement that they are not otherwise eligible for the ERC has been removed for the fourth quarter of 2021. More information regarding recovery startup businesses and previous information about the ERC credit can be found here at this link or by calling an HHM professional at 423.756.7771.