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A business can never resolve a back payroll tax problem without current compliance. New legislation from the Consolidated Appropriations Act, 2021 provides a golden chance to not only get into current compliance but even improve cash flow – the Employee Retention Credit (ERC).

Significant changes that help a business in back payroll tax trouble include:

  • Extension of the ERC through June 30,2021
  • Increased rate from 50% to 70% of qualified wages
  • Increased limit from $10,000 for the year to $10,000 for the quarter
  • Reduced quarter-over-quarter gross receipts decline from 50% to 20%.

The ERC is a fully refundable payroll tax credit for employers that for 2020 is equal to 50% of qualified wages employers paid beginning March 13, 2020. The business may amend it’s payroll tax returns to claim the refund. Such refunds may abate or alleviate much of the business’s back payroll tax problem.

The ability to obtain a credit of 70% of the qualified wages in 2021 may do more than is needed to keep the business in current compliance for the first two quarters. If the amount of the credit exceeds the monthly liability the employer may claim advance refunds on the amount of the credit in excess of the payroll tax liability.

It is uncertain whether a Revenue Officer would levy the advance payments or the IRS computer system will offset the advance payments and apply them to back payroll taxes. Even if the advance payments are levied or offset, the Employee Retention Credit will get the business in current compliance!