On 8 March 2023, the Internal Revenue Service (IRS) issued an updated Treasury Decision correcting its Temporary Regulations (TD 9953 (Corrected)) authorizing the assessment of erroneous refunds of certain COVID-19-related employment tax credits under Internal Revenue Code (IRC) sections 3131, 3132, and 3134 added by the American Rescue Plan Act of 2001 (ARP).
The ARP added sections 3131 through 3133 to the IRC extending the refundable payroll tax credits for paid leave to non-governmental employers with fewer than 500 employees, and certain governmental entities without regard to the number of employees, that provide paid sick and family leave for specified reasons related to COVID-19 with respect to periods of leave beginning on 1 April 2021 through 30 September 2021.
The ARP further established IRC section 3134 to provide a COVID-19 employee retention credit for qualified wages paid after 30 June 2021 and before 1 January 2022, available to any employer carrying on a trade or business during a calendar quarter that meets the requirements to be an eligible employer under the statute.
As originally issued, TD 9953 addressed how the agency would recapture erroneous refunds of tax credits issued, treating them as underpayments of taxes subject to assessment and collection. These temporary regulations authorize the IRS to assess any credits erroneously credited, paid, or refunded in excess of the amount allowed as if those amounts were taxes imposed under the relevant code sections, subject to assessment and administrative collection procedures.
The corrections to Treasury Regulation sections 31.3131-1T(c), 31.3132-1T(c), and 31.3134-1T(c) replace references to IRC section 3121(a) which incorrectly define wages for purposes of the credit, and replace it with 3221(a), addressing the applied payroll tax rate in effect used to calculate the taxes as intended in the regulations.
The corrections are effective on 9 March 2023 and applicable retroactively to the original issuance of T.D. 9953 on 10 September 2021.