Business

IRS answers questions for businesses banking with pandemic tax credits

A tax credit that appeared in the early stages of the pandemic as a way to help businesses keep employees on payroll was soon over.

The Employee Retention Credit was created in the CARES Act in March 2020. Legislators have extended and expanded the refundable credit to the extent that it will pay eligible businesses up to 7,000 dollars every quarter for each worker.

The Internal Revenue Service ended the tax credit in the third quarter, so now it’s telling businesses what to do next if they’re banking on credit for the fourth quarter of 2021. Now, businesses will time to avoid penalties when they pay back the advance tax credit, or make up a shortfall in tax payments.

On Monday, the IRS said businesses that made advance payments for the fourth quarter “will avoid penalties if they repay them by the due date of their applicable employment tax return.”

Companies that reduce tax deposits before December 20 will avoid paying penalties if, among other things, they exceed the amount of tax withheld “on or before the relevant due date for wages paid on December 31, 2021”. Those dates are subject to change, the IRS notes.

IRS Guide can be read here.

Very few businesses have access to this credit for payroll taxes, Treasury Department from research. But businesses have used credit see it as important for their last line.

The credit is expected to expire at the end of this year, due to provisions in the $1.9 trillion American Rescue Plan. But infrastructure bill trimmed the life of the credit so that it ends for many businesses by the end of the third quarter.

That leaves the recipients of the credit tied up if they receive the advances at year-end, or if they reduce payroll taxes they sent in the fourth quarter.

https://www.marketwatch.com/story/irs-clears-up-questions-for-businesses-that-were-banking-on-a-valuable-pandemic-tax-credit-11638833109?rss=1&siteid=rss IRS answers questions for businesses banking with pandemic tax credits

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