Section 80604 of the bipartisan Infrastructure Investment and Jobs Act (H.R. 3684) amends Section 3134 of the Internal Revenue Code to terminate the employee retention credit for employers subject to closure for COVID-19 effective October 1, 2021.  The legislation, which passed the House on November 5 (after passing the Senate on August 10), was presented to President Biden for signature on November 8.  It is anticipated that the President will sign the bill soon.

Once enacted, employers may not claim the credit with respect to wages paid after September 30, 2021.  The employee retention credit was adopted as part of the Coronavirus Aid, Relief, and Economic Security Act in April 2020, and was modeled on a similar credit that had been adopted following natural disasters.  The credit was enhanced and extended through June 30, 2021, in December 2020 as part of the Consolidated Appropriations Act.  The credit was then further extended through the end of 2021 and codified in Section 3134 of the Code as part of the American Rescue Plan Act, adopted earlier this year.

The retroactive nature of the suspension creates potential issues for employers who remained eligible for the credit in October and early November.  Employers were permitted to reduce their employment tax deposits (including all withheld federal employment taxes) to take advantage of? the credit.  Accordingly, employers claiming the credit for wages paid in October and November likely did not deposit amounts to reflect the credit.  Those amounts must now be paid.  Because the employer withheld those taxes from its employees (or reduced the deposit of its own share of FICA taxes), the employer could potentially be subject to a late deposit penalty under Section 6656 of the Code.  It is likely, however, that the IRS will provide relief from penalties attributable to the retroactive change.  It is uncertain  how an employer will signal to the IRS that its late deposits are attributable to the retroactive termination of the credit.  In the interim, employers who reduced their deposits in anticipation of the credit should prepare to deposit any amounts that will now be due, as soon as possible.

Tags: American Rescue Plan Act, Consolidated Appropriations Act, Coronavirus Aid Relief and Economic Security Act, Employee Retention Credit, Employee Retention Tax Credit, ERC, ERTC, H.R. 3684, Infrastructure Investment and Jobs Act
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Photo of S. Michael Chittenden S. Michael Chittenden

Michael Chittenden practices in the areas of tax and employee benefits with a focus on the Foreign Account Tax Compliance Act (FATCA), information reporting (e.g., Forms 1095, 1096, 1098, 1099, W-2, 1042, and 1042-S) and withholding, payroll taxes, and fringe benefits. Michael advises…

Michael Chittenden practices in the areas of tax and employee benefits with a focus on the Foreign Account Tax Compliance Act (FATCA), information reporting (e.g., Forms 1095, 1096, 1098, 1099, W-2, 1042, and 1042-S) and withholding, payroll taxes, and fringe benefits. Michael advises companies on their obligations under FATCA and assists in the development of comprehensive FATCA and Chapter 3 (nonresident alien reporting and withholding) compliance programs.

Michael advises large employers on their employment tax obligations, including the special FICA and FUTA rules for nonqualified deferred compensation, the successor employer rules, the voluntary correction of employment tax mistakes, and the abatement of late deposit and information reporting penalties. In addition, he has also advised large insurance companies and employers on the Affordable Care Act reporting requirements in Sections 6055 and 6056, and advised clients on the application of section 6050W (Form 1099-K reporting), including its application to third-party payment networks.

Michael counsels clients on mobile workforce issues including state income tax withholding for mobile employees and expatriate and inpatriate taxation and reporting.

Michael is a frequent commentator on information withholding, payroll taxes, and fringe benefits and regularly gives presentations on the compliance burdens for companies.

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Photo of Marianna G. Dyson Marianna G. Dyson

Marianna Dyson practices in the areas of payroll tax, fringe benefits, and information reporting, with a specific focus on perquisites provided to employees and directors, worker classification, tip reporting, cross-border compensation, backup withholding, information reporting, and penalty abatement.

Marianna advises large employers on…

Marianna Dyson practices in the areas of payroll tax, fringe benefits, and information reporting, with a specific focus on perquisites provided to employees and directors, worker classification, tip reporting, cross-border compensation, backup withholding, information reporting, and penalty abatement.

Marianna advises large employers on the application of employment taxes, the special FICA tax timing rules for nonqualified deferred compensation, the voluntary correction of employment tax errors, and the abatement of late deposit and information reporting penalties for reasonable cause. On behalf of the restaurant industry, her practice provides extensive experience with tip reporting, service charges, tip agreements, and Section 45B tax credits.

She is a frequent speaker at Tax Executives Institute (TEI), the Southern Federal Tax Institute, and the National Restaurant Association.

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