Menu
Tax Notes logo

Tax Community Continues Push for Quick Guidance on ERC Sunset

Posted on Nov. 30, 2021

Calls for expeditious and employer-friendly guidance are increasing as the IRS begins implementation of the early employee retention credit sunset.

In a November 29 letter to IRS Commissioner Charles Rettig, Roger Harris of Padgett Business Services asked for immediate guidance on the retroactive early end to the ERC enacted in the Infrastructure Investment and Jobs Act (P.L. 117-58), and for penalty relief for affected small businesses.

The bill, signed into law November 15, eliminated the ERC for the fourth quarter of 2021, changing the end date of the credit from December 31 to September 30.

Harris said a lack of guidance and penalty relief could harm the small businesses that the ERC was originally intended to assist through the COVID-19 pandemic.

“The very reason for the existence of the [ERC] was to assist struggling employers so that employees would not have to be laid off. Unfortunately, many of these employers were not prepared for the abrupt ending to this program,” Harris said in the letter. “It is our hope that the IRS will choose to enforce this new change in a way that does not undo the much-needed help that the [ERC] has provided.”

The ERC has allowed employers to claim a tax credit for wages paid to employees during the COVID-19 pandemic. The credit was enacted in the Coronavirus Aid, Relief, and Economic Security Act and was originally available through the end of 2020. It was then extended through 2021 in subsequent legislation.

Harris cited the importance of clear and comprehensive guidance from the IRS on how businesses should plan to repay any money they received for the fourth-quarter credit. He said that among the questions that need answers are the role that Form 941, “Employer’s Quarterly Federal Tax Return,” will play in documenting any money paid back to the IRS; other means of identifying funds paid back in the fourth quarter or future quarters; and whether the money can be paid back through a payment plan.

Other members of the tax community have expressed hope that the IRS will soon assist employers that have already taken advantage of the ERC for the fourth quarter of 2021, as well as hopes that Congress will revisit its decision to end the ERC early.

The American Institute of CPAs warned before enactment of the infrastructure bill that bringing an early end to the ERC would sow confusion among business owners and tax advisers.

On November 24 the IRS instructed employers that are no longer eligible for the ERC and have already reduced their employment tax deposits in anticipation of claiming the ERC for the fourth quarter to monitor guidance issued by the agency.

The IRS noted that employers that received an advance fourth-quarter payment of the ERC and that are no longer eligible should still include that advance payment in their employment tax return. For balances due because of the new law, the agency again said employers should watch for guidance.

On November 19 Rachel Leiser Levy, IRS associate chief counsel (employee benefits, exempt organizations, and employment taxes), said the agency expects to provide further information and guidance addressing the retroactive repeal of the ERC, adding that the guidance is a “very high-priority item for them.”

Copy RID