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Business Tax

Reminder: Penalty Relief Available for Employers Claiming Employee Retention Credits

Thomson Reuters Tax & Accounting  

Thomson Reuters Tax & Accounting  

The IRS has reminded taxpayers that penalty relief is available for businesses that owe penalties for additional income tax due to retroactive employee retention credit claims.

Employee retention credit?

The employee retention credit (ERC) is a refundable tax credit that employers claim on their employment tax return. IRS guidance requires an employer to reduce its income tax deduction for “ERC qualified wages” by the amount of ERC the employer received for those wages.

What’s the problem?

Taxpayers that retroactively claimed an ERC were required to file an amended income tax return reflecting their reduced wage deduction, which increased their income tax liability. However, many of these taxpayers can’t pay their increased income tax because they haven’t received their ERC payment due to the IRS’s backlog in processing adjusted employment tax returns claiming a retroactive ERC.

Penalty relief.

The IRS reminds taxpayers that they may be eligible for relief from failure to pay penalties if they can show reasonable cause for their failure to pay. (Notice 2021-49, 2021-34 IRB)

Taxpayers may also qualify for administrative relief from failure to pay penalties under the IRS’s First-Time Penalty Abatement program in certain circumstances.

To continue your research on refunds of excess COVID-19 employee retention tax credits (generally applicable to wages paid after March 12, 2020, and before October 1, 2021)—credits against FICA taxes, see FTC 2d/FIN ¶ H-4687.5C.

 

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