If you claimed the employee retention credit (ERC) in the fourth quarter of 2021, please be aware that there is a retroactive change affecting the credit for the fourth quarter of 2021.
ERC was created by the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), and the American Rescue Plan Act (ARP Act) extended the ERC for wages paid through December 31, 2021.
Now the recently passed Infrastructure Investment and Jobs Act (IIJ Act) has retroactively repealed the ERC for the fourth quarter of 2021 for all taxpayers except recovery start-up businesses. A recovery start-up business is an employer that began carrying on any trade or business after February 15, 2020, and has gross receipts under $1,000,000 for the three-tax-year period ending with the tax year that precedes the calendar quarter for which the ERC is determined.
Many businesses already claimed the ERC for wages paid the fourth quarter of 2021 before the IIJ Act was passed in mid-November. Thus, other than recovery start-up businesses, employers that have claimed a fourth quarter 2021 ERC will be required to repay advance payments but will not be subject to any penalties. IRS Notice 2021-65 provides guidance on how to repay any advance credit payments and how to avoid penalties.
Please contact us if you'd like to discuss this change and how it may apply to your situation.
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