On July 24, the Internal Revenue Service (IRS) issued a final rule concerning required repayment of overpaid employment tax credits. Generally, the final rule will treat amounts paid by the government that were in excess of the correct amount as amounts that must be repaid as late payments of taxes due, subject to the usual interest and penalties rules.

The final rules (TD 9978, RIN 1545-BQ08) that govern the recapture of COVID-19-related tax credits that were distributed in error by the government replace the temporary and proposed rules the agency issued on September 8, 2021. The final rule contains only minor adjustments to the proposed rule.

The rules apply to tax credits provided under the Families First Coronavirus Relief Act and the CARES Act. The final rule became effective July 31, 2023.

Prospects: This regulation is especially important for businesses that filed for an employee retention tax credit (ERTC), as the ERTC is on the IRS’ list of “dirty dozen” tax scams. The IRS is expected to give heightened scrutiny to those claims.

NAIFA Staff Contact: Jayne Fitzgerald – Director – Government Relations, at jfitzgerald@naifa.org.