TaxWatch: IRS clears up questions for businesses that were banking on a valuable pandemic tax credit


A tax credit hatched in the pandemic’s early stages as a way to help businesses keep staff on the payroll came to an early end.

The Employee Retention Credit was created in the CARES Act of March 2020. Lawmakers extended and broadened the refundable credit to the point that it would pay up eligible businesses up to $7,000 per quarter per worker.

The Internal Revenue Service ended the tax credit in the third quarter, so it’s now telling businesses what to do next if they were banking on the credit for 2021’s fourth quarter. Businesses will now have time to avoid penalties as they pay back advanced tax-credit money, or make up shortfalls on tax payments.

On Monday, the IRS said businesses that had advance payments for the fourth quarter “will avoid failure to pay penalties if they repay those amounts by the due date of their applicable employment tax returns.”

Companies that reduced their tax deposits by Dec. 20 would avoid failure to deposit penalties if, among other things, they sent over the amount of retained tax “on or before the relevant due date for wages paid on Dec. 31, 2021.” Those dates can vary, the IRS noted.

The IRS guidance can be read here.

Few businesses accessed this credit applying to payroll taxes, Treasury Department research showed. But businesses that did use the credit viewed it as critical for their bottom line.

The credit was supposed to run through the end of the year, due to provisions in the $1.9 trillion American Rescue Plan. But the infrastructure bill trimmed the credit’s lifespan so it would end for many businesses at the conclusion of the third quarter.

That put credit recipients in a bind if they received advances for the end of the year, or if they reduced the payroll tax they were sending along for the fourth quarter.

This article was originally published by Read the original article here.

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