Taxpayers and tax professionals have requested that the IRS provide relief from penalties that arise from additional income tax that is owed for businesses. The reason for these requests is that the deduction for qualified wages is reduced by the amount of a retroactively claimed employee retention tax credit (ERTC).
However, taxpayers are unable to pay the additional tax that is owed due to not receiving their ERTC payment in a timely manner. The delay in payments is most likely caused by the IRS’s backlog in processing adjusted employment tax returns or Form 941-X on which individuals have claimed ERTC retroactively.
If you are an employer needing penalty relief, the IRS reminds you that you can potentially be eligible for relief from penalties, however, you need to show reasonable cause for failure to pay on time.
Per Notice 2021-49, you must show reasonable cause and not willful neglect for the failure to pay. You can also potentially qualify for administrative relief under the IRS’s First Time Penalty Abatement program. This program provides relief to taxpayers that:
- Did not previously have to file a return or had no penalties for the three prior tax years,
- Filed all currently required returns or filed an extension of time to file and
- Paid, or arranged to pay, any tax due.
If you have additional questions regarding how to request relief from the additional tax owed, please contact your tax professional today for assistance. You can also visit the IRS’s Penalty Relief page at https://www.irs.gov/payments/penalty-relief.