IRS offers penalty relief to ERTC claimants
The IRS has recently highlighted penalty relief options for employers related to claims for the Employee Retention Tax Credit (ERTC). A common scenario occurs when additional income tax is owed because the deduction for qualified wages is reduced by a retroactively claimed ERTC, yet the taxpayer hasn’t received the ERTC refund payment.
This situation often arises due to delays in the IRS processing adjusted employment tax returns (such as Form 941-X), where taxpayers claim the ERTC retroactively. According to IRS guidance, employers must adjust their income tax deduction for ERTC qualified wages by the amount claimed for the tax year in which the wages were paid or incurred. As a result, taxpayers may face higher income tax liability without having received their ERTC refund.
Taxpayers facing this issue may qualify for relief from penalties for failure to pay taxes if they can demonstrate reasonable cause and not willful neglect. Additionally, under the IRS’s First Time Penalty Abatement program, taxpayers may be eligible for administrative relief from penalties for late payment if they meet certain criteria:
- They did not have to file a return previously or had no penalties in the last three tax years.
- They have filed all currently required returns or filed for an extension.
- They have paid, or arranged to pay, any tax owed.
These provisions aim to provide relief to taxpayers experiencing difficulties due to the complexities of claiming and receiving the ERTC refund. If you have questions related to ERTC and penalties that may be due, contact your ShindelRock tax professional.