How to Repay Q4 Employee Retention Credit (ERC)

By Cooper Melvin, JD

If you received an advance payment of the employee retention credit for the fourth calendar quarter of 2021, you might have to repay the amount received. The Infrastructure Investment and Jobs Act, better known as the Infrastructure Act, changed the effective dates of the employee retention credit so that it is no longer available for the fourth quarter of 2021 unless you are claiming it as a recovery startup business. This change in the law means that if you claimed the employee retention credit due to full or partial suspension of operations or for a significant decline in gross receipts, then you are not eligible for the fourth quarter of 2021 and need to pay back any proceeds you received by requesting an advance payment of the credit.

IRS Notice 2021-65 provides guidance regarding the termination of the ERC and the requirement to repay certain advance payments of the Q4 credits. For an employer who is not a recovery startup business, repayment is due by the due date of the applicable employment tax return that includes the fourth quarter of 2021. Failure to repay these amounts by the due date may result in a failure to pay penalties status. The Notice directs employers to refer to the instructions of the applicable employment tax form for additional information.

Furthermore, if you have reduced deposits for the fourth quarter payments in lieu of the advanced credits, that practice should be stopped. Instead, pay the deposits in the amount required without calculation of the employee retention credit. For deposits due on or before December 20, 2021, with respect to wages paid on or after October 1, 2021 but before January 1, 2022, penalties will not be imposed on reduced deposits if the reduction was consistent with IRS Notice 2021-24; the employer deposits the amounts initially retained on or before the relevant due date for wages paid on December 31, 2021; and, the employer reports the tax liability resulting from the termination of the employee retention credit on the applicable employment tax return. If you need additional assistance in determining the application of this IRS Notice to your situation, please contact your BMSS professional at (833) CPA-BMSS.