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May Compliance Updates: Employer Penalty Relief for Employee Retention Credit Claims

May 25, 2022 8:02:21 AM

IRS Reminder: Employer Penalty Relief for Employee Retention Credit Claims

The IRS has issued a reminder to employers regarding penalty relief for failure to pay taxes related to employee retention credit (ERC) claims.

Taxpayers that claimed the ERC retroactively and filed an amended income tax return reducing their deduction for the ERC qualified wages paid or incurred in the tax year for which the ERC is retroactively claimed have an increased income tax liability, but may not yet have received their ERC refund. 

The IRS is reminding taxpayers that they may be eligible for relief from penalties for failing to pay their taxes if they can show reasonable cause and not willful neglect for the failure to pay. In general, taxpayers may also qualify for administrative relief from penalties for failing to pay on time under the IRS’s First Time Penalty Abatement program if the taxpayer: 

  1. Did not previously have to file a return or had no penalties for the three prior tax years
  2. Filed all currently required returns or filed an extension of time to file and
  3. Paid, or arranged to pay, any tax due.

Click here for more information. 

IRS Notices to Help Payers Correct Backup Withholding Errors Being Sent This Month

Beginning in mid-April 2022, the IRS began sending notices to financial institutions, businesses or payers who filed certain types of information returns that do not match IRS records. 

The IRS sends these notices twice a year. The first notice is sent in September and/or October and a second mailing goes out April of the following year. The notices inform payers that the information return is missing a Taxpayer Identification Number (TIN), has an incorrect name or a combination of both.

Each notice has a list of payees, or the persons receiving certain types of income payments, with identified TIN issues. Payers need to compare the accounts listed on the notice with their account records and correct or update their records, if necessary. This can also include correcting backup withholding on payments made to payees.

The notices also inform payers that they are responsible for backup withholding.

Click here for more information. 

Employers Face New Employment Challenges Due to Remote Work

Payroll professionals and consultants are warning employers to be aware of the extra-legal and payroll obligations as a result of new remote workplaces. 

This includes:

  • State and local taxes;
  • Expense reimbursements; and
  • Business registration

State and Local Taxes

A remote employee’s tax obligation in a new jurisdiction or state needs to be considered by employers. On the other hand, employers should also notify employees or any loss of benefits due to working in another state. 

Expense Reimbursements

Certain states require employers to reimburse employees for work-related expenses incurred while working remotely. In certain states, the employer must reimburse the employee for the entire cost of the expenses even if the cost of the trip exceeds the employer allowance. 

Business Registration

Employers may be required to register their business in those states where they have employees located. This includes the possibility of having to obtain relevant state business licenses and make contributions to a state unemployment insurance fund.

Click here for more information.