Dixon Hughes Goodman LLP (DHG) has sent a request to the Internal Revenue Service (IRS) asking for income tax payment relief for businesses eligible for 2020 Employee Retention Credits (ERC) for which refunds have not yet been received.
Taxpayers claiming the ERC are required to reduce their otherwise deductible qualified wages by the amount of ERC credit claimed. Due to this wage deduction disallowance, many taxpayers are now eligible for ERC during 2020 will be required to pay additional income tax despite not yet having received the refunds associated with these credits. This required payment will occur at a time when many employers’ cash reserves are both depleted and desperately needed to resume full operations as the economy begins to improve. Taxpayers who are unable to make this payment or are unable to accurately estimate the wage disallowance may also find themselves subjected to late payment penalties.
This request, should it be granted, would disregard the failure to pay penalty for one year from the otherwise applicable statutory due date. This would allow taxpayers who are still evaluating qualification or have not yet quantified their ERC, additional time to calculate any ERC and submit refund claims before they have to pay the taxes associated with the wage reduction. It would also allow taxpayers lacking the cash to pay the additional taxes additional time to receive their refunds before having to pay the associated tax increase.