Weekly Legislative Update December 27, 2021

IRS issues guidance regarding the retroactive termination of the Employee Retention Credit

The Internal Revenue Service issued guidance for employers regarding the retroactive termination of the Employee Retention Credit.

The Infrastructure Investment and Jobs Act, which was enacted on Nov. 15, 2021, amended the law so that the Employee Retention
Credit applies only to wages paid before October 1, 2021, unless the employer is a recovery startup business.
Notice 2021-65 applies to employers that paid wages after September 30, 2021, and received an advance payment of the Employee Retention Credit for those wages or reduced employment tax deposits in anticipation of the credit for the fourth quarter of 2021, but are now ineligible for the credit due to the change in the law. The notice also provides guidance regarding how the rules apply to recovery startup businesses during the fourth quarter of 2021.
Employers who Received Advance Payments Generally, employers that are not recovery startup businesses and received advance payments for fourth
quarter wages of 2021 will avoid failure to pay penalties if they repay those amounts by the due date of their applicable employment tax returns.
Employers who Reduced Employment Tax Deposits Employers that reduced deposits on or before Dec. 20, 2021, for wages paid during the fourth calendar quarter of 2021 in anticipation of the Employee Retention Credit and that are not recovery startup businesses will not be subject to a
failure to deposit penalty with respect to the retained deposits if—
  1. The employer reduced deposits in anticipation of the Employee Retention Credit, consistent with the rules in Notice 2021-24,
  2. The employer deposits the amounts initially retained in anticipation of the Employee Retention Credit on or before the relevant due date for wages paid on December 31, 2021 (regardless of whether the employer actually pays wages on that date). Deposit due dates will vary based on the deposit schedule of the employer, and
  3. The employer reports the tax liability resulting from the termination of the employer’s Employee Retention Credit on the applicable employment tax return or schedule that includes the period from October 1, 2021, through December 31, 2021. Employers should refer to the instructions to the applicable employment tax return or schedule for additional information on how to report the tax liability.

Due to the termination of the Employee Retention Credit for wages paid in the fourth quarter of 2021 for employers that are not recovery startup businesses, failure to deposit penalties are not waived for these employers if they reduce deposits after Dec. 20, 2021.
If an employer does not qualify for relief under this Notice, it may reply to a notice about a penalty with an explanation and the IRS will consider reasonable cause relief.
More information for businesses seeking coronavirus-related tax relief can be found at IRS.gov.
TIA Pens Letter to Senator Wyden On WOTC Recommendations To Improve Enhanced WOTC S. 784
Dear Mr. Chairman:
With strong demand driving the nation’s economy and the Federal Reserve Bank of Atlanta predicting nine percent GDP growth in the final quarter of the year, labor supply remains one of our most serious economic problems. Your bill calling for a work opportunity credit with increased benefits for the next two years can deal powerfully with major problems like COVID-19’s continued disincentives to work, skill shortages, and employers’ rising costs from inflation.
We are writing to recommend two proposals which, if adopted, can greatly increase the effectiveness of a beefed-up work opportunity credit. First, the more people Congress makes eligible for WOTC—and there are millions who deserve to be eligible as our economy has evolved—the more WOTC jobs will increase as employers train their sights on hiring from additional target groups, perhaps even improving the quality of hires.
Work Opportunity Tax Credit Coalition has identified deserving multi-million-size groups which have characteristics to qualify them as new WOTC target groups, such as (1) persons receiving cash Social Security Disability benefits; (2) persons defined in Senator Durbin’s bill for disconnected youth and foster youth target groups; (3) allowing persons in existing WOTC target groups to work for private non-profit employers, mostly in health care and education and with plentiful good jobs; (4) persons older than 40 who are receiving SNAP benefits can be made eligible for WOTC, which would be a boon for older workers (no good reason exists for disallowing WOTC for SNAP recipients older than 40); (5) 600,000 spouses of military service members being shunned by many employers due to their short job tenure from relocation; (6) homeless people are long-overdue for designation as a WOTC target group to help so many of the driftless of all ages find a job.
(We do not advise a target group based on income level. That was tried forty years ago and found to be too complicated, costly, and time-consuming.)
Congress should designate these new target groups now, in the present workforce crisis, with prices and wages rising and the number of people employed 5 million short of pre-pandemic levels. Our country would have around 30 million more WOTC-eligible people, and an estimated two or three million additional hires based on stronger employer outreach to workers and choice among a broader range of aptitudes.
Employee adjustment to new target groups is simple and virtually costless: a worker checks a box on an IRS form, usually during job application, indicating he or she meets the criteria for their target group, then submits the form with job application to as many employers they wish; all else follows current law.
Our second recommendation is that, for WOTC-eligible workers of current target groups, Congress should seek to assure that, once a worker is certified for the WOTC credit by the proper State Workforce Agency, the employer should be able to receive the financial benefit of the credit as soon as possible. Employers save cash when they use WOTC credits to reduce their income tax liability, and this additional cash flow is vital to any business. But if employers have no income tax liability or have more WOTC credits than their income tax liability, current law requires carrying forward the amount by which their WOTC credits exceed their income tax liability. 
This defers for an uncertain period the receipt of cash flow required by businesses to operate, especially small businesses, and so are disadvantaged by inability to liquidate their credits timely. It is not wise policy for government to require a business, especially during hard times to, in effect, lend cash to the Treasury. In such circumstances, we strongly advise that Congress authorize Treasury to allow certified WOTC credits to be claimed against payroll tax, so cash flow travels as speedily as possible to the taxpayer.
Thank you for the opportunity to bring these matters to your attention.
Tire Industry Association