Recapture of Excess Employment Tax Credits Under the American Relief Plan Act of 2021 (rule, 86 FR 50637, September 10, 2021)
Summary
Temporary regulations from the Internal Revenue Service (TD 9953) under sections 3131, 3132 and 3134 of the Internal Revenue Code, which were added by sections 9641 and 9651 of the American Rescue Plan Act of 2021. They were published in the Federal Register on September 10, 2021 (Vol. 86, No. 173) and took effect that day. They authorize the assessment of any erroneous refund of the paid sick and family leave credits and the employee retention credit (ERC) claimed under those sections. The preamble recounts that the Emergency Paid Sick Leave Act (EPSLA) and the Emergency Family and Medical Leave Expansion Act (EFMLEA) entitled employers to fully refundable tax credits for leave wages, that the credits were extended through March 31, 2021. The preamble says the ARP provided similar credits. Proposed regulations (REG–109077–21) were published the same day.
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Cite this document
“Recapture of Excess Employment Tax Credits Under the American Relief Plan Act of 2021 (rule, 86 FR 50637, September 10, 2021).”
Original at www.govinfo.gov. Archived at Pandemic Darlings, https://pandemicdarlings.com/source-documents/recapture-of-excess-employment-tax-credits-under-the-american-relief-p-1650758b53/
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Federal Register / Vol. 86, No. 173 / Friday, September 10, 2021 / Rules and Regulations 50637
cabin or adjoining property owner’s proposed regulations (REG–109077–21) EPSLA and EFMLEA expired December
dock, pier, boathouse, or boatwells. set forth in the notice of proposed 31, 2020, the tax credits for qualified
* * * * * rulemaking on this subject in the leave wages paid for periods of leave
Monolithic frame means the Proposed Rules section of this issue of taken beginning on April 1, 2020, and
supporting floor structure of a floating the Federal Register. ending on December 31, 2020, were
cabin that is constructed as one rigid DATES: extended by the Tax Relief Act through
component. It specifically excludes any Effective date: These temporary March 31, 2021, for paid leave that
attached structures, such as decks and regulations are effective on September would have satisfied the requirements
platforms, regardless of when they were 10, 2021. of EPSLA and EFMLEA.
connected or how they are connected Applicability date: For date of The ARP added sections 3131 through
(e.g., pins, hinges, bolts, ropes). applicability, see §§ 31.3131–1T, 3133 of the Code, which extend the
New floating cabin means a floating 31.3132–1T, and 31.3134–1T of these refundable tax credits for paid leave to
cabin that was not located or moored on temporary regulations. non-governmental employers with fewer
the Tennessee River System as of FOR FURTHER INFORMATION CONTACT: than 500 employees, and certain
December 16, 2016. Concerning these temporary regulations, governmental entities 1 without regard
NaLee Park at 202–317–6798. to the number of employees, that
* * * * *
Rebuilding means replacement of all SUPPLEMENTARY INFORMATION: provide paid sick and family leave for
specified reasons related to COVID–19
or a significant portion of an approved Background with respect to periods of leave
obstruction to the same configuration,
The Families First Coronavirus beginning on April 1, 2021, through
total footprint, and dimensions (length,
Response Act (Families First Act), September 30, 2021. The paid sick leave
width, and height of the obstruction or
Public Law 116–127, 134 Stat. 178 credit and the paid family leave credit
enclosed or open space) as the approved
(March 18, 2020), the Coronavirus Aid, (collectively, ‘‘paid sick and family
plans, standards, and conditions of the
Relief, and Economic Security Act leave credits’’) under sections 3131
section 26a permit.
(CARES Act), Public Law 116–136, 134 through 3133 are available to eligible
* * * * * Stat. 281 (March 27, 2020), the COVID- employers that provide employees with
Structural modification means any paid leave that would have satisfied the
related Tax Relief Act of 2020 (Tax
alteration to the dimensions (length, requirements of EPSLA and EFMLEA,
Relief Act), enacted as Subtitle B of Title
width, and height of the obstruction or II of Division N of the Consolidated with certain modifications made
enclosed or open space), footprint, or Appropriations Act, 2021, Public Law pursuant to the ARP.
approved plans of a structure. 116–260, 134 Stat.1182 (December 27, Under section 3131, a credit is
* * * * * 2020), the Taxpayer Certainty and available to eligible employers who pay
Disaster Relief Tax Act of 2020 (Relief qualified sick leave wages to an
Allen A. Clare,
Act), enacted as Division EE of the employee for up to 80 hours leave
Vice President, River and Resources provided during the period beginning
Stewardship. Consolidated Appropriations Act, 2021,
and the American Rescue Plan Act of April 1, 2021, and ending September 30,
[FR Doc. 2021–19098 Filed 9–9–21; 8:45 am] 2021, if the employee is unable to work
2021 (the ARP), Public Law 117–2, 135
BILLING CODE 8120–08–P
Stat. 4 (March 11, 2021), provide relief or telework because the employee:
to taxpayers from economic hardships (1) Is subject to a Federal, State, or
resulting from the Coronavirus Disease local quarantine or isolation order
DEPARTMENT OF THE TREASURY 2019 (COVID–19). As described below, related to COVID–19;
this relief includes employment tax (2) has been advised by a health care
Internal Revenue Service provider to self-quarantine due to
credits for certain wages paid by
employers. concerns related to COVID–19;
26 CFR Part 31 (3) is experiencing symptoms of
I. Paid Sick and Family Leave Credits COVID–19 and seeking a medical
[TD 9953]
The Emergency Paid Sick Leave Act diagnosis, is seeking or awaiting the
RIN 1545–BQ09 results of a diagnostic test for, or a
(EPSLA) and the Emergency Family and
Medical Leave Expansion Act medical diagnosis of, COVID–19 and the
Recapture of Excess Employment Tax employee has been exposed to COVID–
Credits Under the American Relief Plan (EFMLEA), enacted as Divisions E and
C of the Families First Act, respectively, 19 or the employee’s employer has
Act of 2021 requested the test or diagnosis, or the
generally required employers with fewer
AGENCY: Internal Revenue Service (IRS), than 500 employees to provide paid employee is obtaining immunization
Treasury. leave due to certain circumstances related to COVID–19 or recovering from
ACTION: Temporary regulations. related to COVID–19. Sections 7001 and any injury, disability, illness, or
7003 of the Families First Act generally condition related to the immunization;
SUMMARY: This document sets forth provided that non-governmental (4) is caring for an individual who is
temporary regulations under sections employers subject to the paid leave subject to a Federal, State, or local
3131, 3132, and 3134 of the Internal requirements under EPSLA and quarantine or isolation order related to
Revenue Code (Code), added by sections EFMLEA were entitled to fully COVID–19, or has been advised by a
9641 and 9651 of the American Rescue refundable tax credits to cover the
1 Section 9641 of the ARP added sections
Plan Act of 2021. These temporary wages paid for leave taken for those
3131(f)(5) and 3132(f)(5) to the Code, which extend
regulations authorize the assessment of periods of time during which employees paid sick and family leave credits to certain
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any erroneous refund of the tax credits are unable to work or telework for governmental employers (without regard to the
paid under sections 3131, 3132 specified reasons related to COVID–19, number of employees). However, the credits are not
(including any increases in those credits plus allocable qualified health plan allowed for the government of the United States, or
any agency or instrumentality of the United States
under section 3133), and 3134 of the expenses. government, except for an organization described in
Code. The text of these temporary Although the requirement to provide section 501(c)(1) of the Code and exempt from tax
regulations also serves as the text of the employees with paid leave under under section 501(a) of the Code.
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50638 Federal Register / Vol. 86, No. 173 / Friday, September 10, 2021 / Rules and Regulations
health care provider to self-quarantine An eligible employer may not receive 3132(e), the credit is also increased by
due to concerns related to COVID–19; the paid family leave credit for the same certain amounts paid under collectively
(5) is caring for a son or daughter of wages for which it received the paid bargained agreements by the eligible
such employee if the school or place of sick leave credit. Further, an eligible employer that are properly allocable to
care of the son or daughter has been employer that receives the credits for the qualified leave wages (‘‘certain
closed, or the child care provider of the qualified sick leave wages under section collectively bargained contributions’’),
son or daughter is unavailable, due to 3131 of the Code and qualified family subject to the daily and aggregate credit
COVID–19 precautions; or leave wages under section 3132 of the limitations. The credits for the qualified
(6) is experiencing any other Code (collectively, ‘‘qualified leave leave wages and the collectively
substantially similar condition specified wages’’) may not receive the employee bargained contributions combined
by the Secretary of Health and Human retention credit allowed under section cannot exceed the $511 daily and $5110
Services (HHS) in consultation with the 2301 of the CARES Act or section 3134 aggregate limitation or $200 daily and
Secretaries of the Treasury and Labor. of the Code based on the same wages. $2000 aggregate limitation for paid sick
The Secretary of HHS has specified, For the second calendar quarter of 2021, leave and the $200 daily and $12,000
after consultation with the Secretaries of if an eligible employer receives the aggregate limitation for paid family
Treasury and Labor, that a substantially employee retention credit under section leave. However, the credit for the
similar condition is one in which the 2301 of the CARES Act based on wages allocable qualified health expenses is in
employee takes leave: paid that are also qualified leave wages addition to the credit for the qualified
• To accompany an individual to on which the employer may claim the leave wages and not subject to the daily
obtain immunization related to COVID– paid sick and family leave credits, the and aggregate credit limitations.
19, or employer must reduce any paid sick and Under sections 3131 and 3132,
• to care for an individual who is family leave credits by the amount of qualified leave wages are subject to the
recovering from any injury, disability, the credit allowed under section 2301 of taxes imposed on employers by sections
illness, or condition related to the the CARES Act that is attributable to 3111(a) (employer’s share of social
immunization.2 those same wages. See sections security tax), 3111(b), and 3221(a), but
If an employee is unable to work or 3131(f)(3) and 3132(f)(3). For the third section 3133(a) provides that the paid
telework for reasons related to COVID– and fourth calendar quarters of 2021, sick and family leave credits under
19 described in (1), (2), or (3) above, any qualified leave wages eligible sections 3131 and 3132 are increased by
qualified sick leave wages are wages employers take into account for the amount of the taxes imposed by
paid at the employee’s regular rate of purposes of the paid sick and family sections 3111(a), 3111(b), and 3221(a)
pay or, if higher, the Federal minimum leave credits may not be taken into on qualified leave wages.
account for purposes of the employee The paid sick and family leave credits
wage or any applicable State or local
retention credit under section 3134 of under sections 3131 and 3132 are
minimum wage, up to a maximum of
the Code. See section 3134(c)(3)(D). allowed against the taxes imposed on
$511 per day and $5,110 in the
The paid sick and family leave credits employers under section 3111(b) (the
aggregate. If an employee is unable to
are also reduced by the amount of the Hospital Insurance tax (Medicare tax)),
work or telework for reasons related to
credit allowed under section 41 (the and against so much of the taxes
COVID–19 described in (4), (5), or (6)
credit for increasing research activities) imposed under section 3221(a) (the
above, qualified sick leave wages are
with respect to wages taken into account Railroad Retirement Tax Act Tier 1 tax)
two-thirds of the wages paid at the
for determining both the credit under as are attributable to the rate in effect
employee’s regular rate of pay or, if
section 41 and the paid sick and family under section 3111(b), as applicable, on
higher, the Federal minimum wage or all wages and compensation paid to all
leave credits. In addition, any wages
any applicable State or local minimum employees, and any credit amounts in
taken into account in determining paid
wage, up to a maximum of $200 per day excess of these taxes are treated as an
sick and family leave credits cannot be
and $2,000 in the aggregate. overpayment to be refunded under
taken into account as wages for
Under section 3132, a credit is sections 6402(a) and 6413(b) of the
purposes of the credits under sections
available to eligible employers who pay Code. See sections 3131(b)(4)(A),
45A, 45P, 45S, and 51. See sections
qualified family leave wages to an 3131(f)(1), 3132(b)(3)(A), and 3132(f)(1).
3131(f)(3) and 3132(f)(3).
employee for up to 12 weeks of paid Sections 3131(f)(2) and 3132(f)(2)
family leave provided during the period II. Employee Retention Credit
provide that, for purposes of sections
beginning April 1, 2021, and ending 3131 and 3132, respectively, the term Section 2301 of the CARES Act, as
September 30, 2021, if the employee is ‘‘wages’’ means wages as defined in originally enacted, provides for an
unable to work or telework due to any section 3121(a), determined without employee retention credit for eligible
of the conditions for which eligible regard to paragraphs (1) through (22) of employers, including tax-exempt
employers may provide paid sick leave. section 3121(b), and compensation as organizations, that pay qualified wages,
Qualified family leave wages are two- defined in section 3231(e), determined including certain health plan expenses,
thirds of the wages paid at the without regard to the sentence in to some or all employees after March 12,
employee’s regular rate of pay, up to a section 3231(e)(1) that begins ‘‘Such 2020, and before January 1, 2021.
maximum of $200 per day and $12,000 term does not include remuneration’’. Section 206 of the Relief Act adopted
in the aggregate. Eligible employers are entitled to amendments and technical changes to
receive a credit equal to the amount of section 2301 of the CARES Act for
2 For more information on the paid sick and
qualified leave wages paid under qualified wages paid after March 12,
family leave credits, including who is an
‘‘individual’’ for purposes of this ‘‘substantially
sections 3131 and 3132. Under sections 2020, and before January 1, 2021,
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similar’’ condition, see Tax Credits for Paid Leave 3131(d) and 3132(d), the credit is primarily expanding eligibility for
Under the American Rescue Plan Act of 2021 for increased by the eligible employer’s cost certain employers to claim the credit.
Leave After March 31, 2021 | Internal Revenue of maintaining health insurance Section 206 of the Relief Act is effective
Service (irs.gov) at https://www.irs.gov/newsroom/
tax-credits-for-paid-leave-under-the-american-
coverage allocable to the qualified leave retroactive to the effective date of
rescue-plan-act-of-2021-for-leave-after-march-31- wages (‘‘allocable qualified health plan section 2301 of the CARES Act. Section
2021. expenses’’). Under sections 3131(e) and 207 of the Relief Act, which is effective
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Federal Register / Vol. 86, No. 173 / Friday, September 10, 2021 / Rules and Regulations 50639
for calendar quarters beginning after receipts. If an employer was not in section 3111(b) and so much of the taxes
December 31, 2020, further amends existence in 2019, an employer may use imposed under section 3221(a) as are
section 2301 of the CARES Act to the average number of full-time attributable to the rate in effect under
extend the application of the employee employees in 2020 rather than 2019. If section 3111(b), as applicable, for any
retention credit to qualified wages paid an employer is an eligible employer due calendar quarter, after application of the
after December 31, 2020, and before July to being a recovery startup business, the other credits previously applied, such
1, 2021, and to modify the calculation maximum aggregate employee retention excess shall be treated as an
of the credit amount for qualified wages credit the employer may claim in a overpayment that shall be refunded
paid during that time. Section 9651 of calendar quarter is $50,000. In the third under sections 6402(a) and 6413(b).
the ARP enacted section 3134 of the and fourth calendar quarters of 2021, a Section 6402(a) generally provides
Code, effective for calendar quarters recovery startup business that is a small that, within the applicable period of
beginning after June 30, 2021, to provide eligible employer may treat all wages limitations, overpayments may be
an employee retention credit for paid with respect to an employee during credited against any liability in respect
qualified wages paid after June 30, 2021, the quarter as qualified wages. See of an internal revenue tax on the part of
and before January 1, 2022. The Notice 2021–49. the person who made the overpayment
Department of the Treasury (Treasury The same wages or compensation and any remaining balance refunded to
Department) and the Internal Revenue cannot be counted for both the paid sick such person. Section 6413(b) provides
Service (IRS) will continue to monitor and family leave credits under sections that if more than the correct amount of
potential legislation related to the 3131 and 3132 and the employee employment tax imposed by sections
employee retention credit that may retention credit under section 3134. 3101, 3111, 3201, 3221, or 3402 is paid
impact certain rules described in this Qualified wages for the employee or deducted and the overpayment
preamble. retention credit also do not include any cannot be adjusted under section
The employee retention credit is wages taken into account under sections 6413(a).4 the amount of the
available to any employer carrying on a 41, 45A, 45P, 45S, 51, and 1396 of the overpayment shall be refunded (subject
trade or business during a calendar Code. See section 3134(c)(3)(D). to the applicable statute of limitations)
quarter that meets the requirements to Additionally, qualified wages do not as the Secretary may prescribe in
be an eligible employer under section include amounts taken into account as regulations.
3134, which include experiencing a full payroll costs for Paycheck Protection The IRS revised Form 941, Employer’s
or partial suspension of business Program loan forgiveness and certain Quarterly Federal Tax Return, Form
operations due to orders from an grants. See section 3134(h). 943, Employer’s Annual Federal Tax
appropriate governmental authority Section 3134(c)(4)(A) provides that, Return for Agricultural Employees,
limiting commerce, travel, or group for purposes of section 3134, the term Form 944, Employer’s Annual Federal
meetings (for commercial, social, ‘‘wages’’ means wages as defined in Tax Return, and Form CT–1, Employer’s
religious, or other purposes) due to section 3121(a) 3 and compensation as Annual Railroad Retirement Tax
COVID–19, experiencing a decline in defined in section 3231(e). Return, so that employers may use these
gross receipts, or qualifying as a The employee retention credit under returns to claim the paid sick and family
recovery startup business. section 3134 is equal to 70 percent of leave credits under sections 3131
For eligible employers that averaged qualified wages paid. The credit is through 3133 and the employee
more than 500 full-time employees allowed against the taxes imposed on retention credit under section 3134. The
(within the meaning of section 4980H) employers under section 3111(b), first revised employment tax returns allow
during 2019 (large eligible employers), reduced by any tax credits allowed for any of these credits in excess of the
qualified wages are wages and under sections 3131 and 3132, and taxes imposed under section 3111(b)
compensation (including allocable against so much of the taxes imposed and so much of the taxes imposed under
qualified health plan expenses), up to under section 3221(a) as are attributable section 3221(a) as are attributable to the
$10,000 per employee per calendar to the rate in effect under section rate in effect under section 3111(b), as
quarter, paid to employees for the time 3111(b), as applicable, first reduced by applicable, to be credited against other
during which they are not providing any credits allowed under sections 3131 employment taxes and then for any
services due to a full or partial and 3132, on all wages and remaining balance to be credited or
suspension of business operations or a compensation paid to all employees. refunded to the employer in accordance
decline in gross receipts. For eligible Any credit amounts in excess of these with section 6402(a) or section 6413(b).
employers that averaged 500 full-time taxes are treated as an overpayment that IV. Advance Payment of Credits and
employees or fewer during 2019 (small shall be refunded under sections 6402(a) Erroneous Refunds
eligible employers), and for severely and 6413(b) of the Code.
financially distressed employers as Sections 3131(b)(4)(B) and
defined in section 3134(c)(3)(C)(ii) that III. Refundability of Credits 3132(b)(3)(B) provide that, in
are also large eligible employers, Sections 3131(b)(4)(A), 3132(b)(3)(A), anticipation of the paid sick and family
qualified wages are the wages and and 3134(b)(3) provide that if the leave credits under these sections
compensation (including allocable amount of the paid sick and family (which would include any increases in
qualified health plan expenses), up to leave credits (which would include any the credits under section 3133(a)),
$10,000 per employee per calendar increases in the credits under section including any refundable portions, these
quarter, paid with respect to an 3133(a)) and employee retention credit 4 Section 6413(a) addresses interest-free
employee (regardless of whether the exceeds the taxes imposed under adjustments of overpayments. The section provides
employee is performing services) during that if more than the correct amount of employment
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any period in the calendar quarter in 3 For purposes of certain governmental tax imposed by section 3101, 3111, 3201, 3221, or
which the business operations are fully organizations or entities as described in section 3402 is paid with respect to any payment of
or partially suspended due to a 3134(f)(2) of the Code, wages as defined in section remuneration, proper adjustments with respect to
3121(a) are determined without regard to both the tax and the amount to be deducted, shall
governmental order or during any paragraphs (5), (6), (7), (10), and (13) of section be made, without interest, in such manner and at
calendar quarter in which the employer 3121(b) (except with respect to services performed such times as the Secretary may by regulations
is experiencing a decline in gross in a penal institution by an inmate thereof). prescribe.
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50640 Federal Register / Vol. 86, No. 173 / Friday, September 10, 2021 / Rules and Regulations
credits are to be advanced, according to promulgation of regulations or other regulations under new sections 3131,
forms and instructions provided by the guidance to do so. 3132, and 3134 of the Code. Concurrent
Secretary, up to the total allowable Specifically, with regard to the paid with the publication of this Treasury
amount of the credits and subject to sick and family leave credits, sections decision, the Treasury Department and
applicable limits for the calendar 3131(g) and 3132(g) provide, in relevant the IRS are publishing in the Proposed
quarter. Section 3134(j)(2) provides that part, that the Secretary will provide Rules section of this issue of the Federal
eligible employers for which the average such regulations or other guidance as Register a notice of proposed
number of full-time employees (within may be necessary to carry out the rulemaking (REG–109077–21) on this
the meaning of section 4980H) purposes of the credits, including subject that cross-references the text of
employed by the eligible employer regulations or other guidance to prevent these temporary regulations. See section
during 2019 was not greater than 500 the avoidance of the purposes of the 7805(e)(1). Interested persons are
may elect for any calendar quarter to limitations under this provision and to directed to the ADDRESSES and
receive an advance payment of the recapture the benefit of the credit in Comments and Requests for a Public
employee retention credit for the quarter cases where there is a subsequent Hearing sections of the preamble to
in an amount not to exceed 70 percent adjustment to the credit. See sections REG–109077–21 for information on
of the average quarterly wages paid in 3131(g)(1), 3131(g)(4), 3132(g)(1), and submitting public comments or
calendar year 2019. 3132(g)(4). With regard to the employee requesting a public hearing on the
To implement the advance payment retention credit, section 3134(j)(3)(B) proposed regulations.
provisions, employers that are eligible allows for the direct assessment of
certain erroneous refunds of advanced Explanation of Provisions
to receive an advance of the tax credits
may use IRS Form 7200, Advance portions of the credit by providing that Sections 3131(b)(3), 3131(b)(4)(A),
Payment of Employer Credits Due To if a small eligible employer specified in 3131(f)(1), 3132(b)(2), 3132(b)(3)(A),
section 3134(j)(2) receives excess 3132(f)(1), 3134(b)(2), 3134(b)(3), and
COVID–19, to request an advance of the
advance payments of the credit, then the 3134(c)(1) provide that the credits
paid sick and family leave credits and
taxes imposed under section 3111(b) or described in these sections are taken
the employee retention credit.
so much of the taxes imposed under against the taxes imposed under section
Employers are required to reconcile any
section 3221(a) as are attributable to the 3111(b) and so much of the taxes
advance payments claimed on Form
rate in effect under section 3111(b), as imposed under section 3221(a) as are
7200 with total credits claimed and total
applicable, for the calendar quarter are attributable to the rate in effect under
taxes due on their employment tax
increased by the amount of the excess. section 3111(b), as applicable, (although
returns.
Section 3134(m)(3) further provides that for the employee retention credit, the
A refund or credit of any portion of taxes are first reduced by any paid sick
the Secretary will issue such forms,
these tax credits, regardless of whether and family leave credits). Additionally,
instructions, regulations, and other
they are advanced, to a taxpayer in if the amount of the credits exceeds
guidance as are necessary to prevent the
excess of the amount to which the these taxes for any calendar quarter,
avoidance of the purposes of the
taxpayer is entitled is an erroneous limitations under section 3134. then the excess shall be treated as an
refund that the employer must repay. On July 29, 2020, temporary overpayment to be refunded or credited
V. Assessment Authority regulations (TD 9904) amending the under sections 6402(a) and 6413(b). Any
Employment Tax Regulations under credits claimed that exceed the amount
Section 6201 authorizes the Secretary sections 3111 and 3221 to provide for to which the employer is entitled and
to determine and assess tax liabilities the recapture of erroneous refunds of that are actually credited or refunded by
including interest, additional amounts, the paid sick and family leave credits the IRS are considered to be erroneous
additions to the tax, and assessable under the Families First Act and refunds of these credits. Section
penalties. However, the general erroneous refunds of the employee 3134(j)(3)(B) provides that if a small
authority to assess tax liabilities under retention credit under the CARES Act, eligible employer specified in section
section 6201(a) does not provide for the pursuant to the authority granted under 3134(j)(2) receives excess advance
assessment of any non-rebate 5 portion these acts to prescribe those regulations, payments of the credit, then the taxes
of an erroneous refund of a refundable were published in the Federal Register imposed under section 3111(b) or so
tax credit, which may include a portion (85 FR 45514). A notice of proposed much of the taxes imposed under
of the credits available under sections rulemaking (REG–111879–20) cross- section 3221(a) as are attributable to the
3131, 3132, and 3134, if the refund referencing the temporary regulations rate in effect under section 3111(b), as
exceeds the amounts to which an was published in the Federal Register applicable, for the calendar quarter are
employer is properly entitled. While on the same day (85 FR 45551). Because increased by the amount of the excess.
these types of erroneous refunds are the ARP did not amend the Families These temporary regulations provide
generally recovered or recaptured First Act or CARES Act to extend the that erroneous refunds of these credits
through agreed upon voluntary paid leave credits and employee are treated as underpayments of the
repayments, setoff, or through litigation, retention credit provided thereunder, taxes imposed under section 3111(b)
the Code in some instances, such as in but rather enacted new Code sections and so much of the taxes imposed under
sections 3131, 3132, and 3134, provides that provide for similar credits, the section 3221(a) as are attributable to the
for the administrative recapture of these temporary regulations in TD 9904 do rate in effect under section 3111(b), as
non-rebate refunds either by directly not apply to the credits under the ARP. applicable. These temporary regulations
authorizing assessment of the erroneous Therefore, separate regulations are authorize the IRS to assess any credits
non-rebate refunds or by authorizing the required to provide for the recapture of erroneously credited, paid, or refunded
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the erroneous refund of these credits in excess of the amount allowed as if
5 As a general matter, ’’non-rebate’’ refers to the
pursuant to the authority granted under those amounts were taxes imposed
portion of any refund of a tax credit that exceeds sections 3131, 3132, and 3134. under section 3111(b) and so much of
the IRS’s determination of the recipient’s tax
liability (i.e., the remaining portion of the refund
Accordingly, this document amends the taxes imposed under section 3221(a)
that is paid to the recipient after the refund has the Employment Tax Regulations (26 as are attributable to the rate in effect
been applied to the recipient’s tax liability). CFR part 31) by adding temporary under section 3111(b), as applicable,
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Federal Register / Vol. 86, No. 173 / Friday, September 10, 2021 / Rules and Regulations 50641
subject to assessment and April 1, 2021 and ending on September credited, paid, or refunded in excess of
administrative collection procedures. 30, 2021. Section 3134(n) provides that the actual amount allowed as if the
This allows the IRS to prevent the the employee retention tax credit amounts were taxes imposed under
avoidance of the purposes of the applies to wages paid after June 30, section 3111(b) and so much of the taxes
limitations under the credit provisions 2021, and before January 1, 2022. imposed under section 3221(a) as are
and to recover the erroneous refund Pursuant to section 7805(b)(2) of the attributable to the rate in effect under
amounts efficiently, while also Code, these temporary regulations are section 3111(b), as applicable, subject to
preserving administrative protections permitted to apply before the dates assessment and administrative
afforded to taxpayers with respect to provided under section 7805(b)(1), collection procedures. Notwithstanding
contesting their tax liabilities under the including the date on which these this certification, the Treasury
Code and avoiding unnecessary costs temporary regulations are filed with the Department and the IRS invite
and burdens associated with litigation. Federal Register, because these comments on any impact these
These assessment and administrative temporary regulations are being issued temporary regulations would have on
collection procedures may apply in the within 18 months of the date of the small entities.
normal course in processing enactment of the relevant statutory
employment tax returns that include provisions. Accordingly, these Pursuant to section 7805(f), these
advances in excess of claimed credits temporary regulations apply to all temporary regulations have been
and in examining returns for excess credits under sections 3131 and 3132, submitted to the Chief Counsel of the
claimed credits. These assessment and including any increases to the credits Office of Advocacy of the Small
administrative collection procedures do under section 3133, credited or Business Administration for comment
not replace the existing recapture refunded on or after April 1, 2021, on its impact on small business.
methods, but rather represent an including advanced refunds, as well as The Treasury Department and the IRS
alternative method available to the IRS. all credits under section 3134 that are have determined that there is good
Specifically, these temporary credited or refunded on or after July 1, cause to issue these regulations as
regulations provide that any amount of 2021, including advanced refunds. temporary regulations. Employers were
the credits for qualified leave wages and These applicability dates correspond to required to file Form 941, Employer’s
certain collectively bargained the effective dates of the statutory Quarterly Federal Tax Return, for the
contributions under sections 3131 and sections that provide for these credits second quarter of calendar year 2021 by
3132, plus any amount of credits for and that authorize guidance to allow for July 31, 2021, as required by section
qualified health plan expenses under the administrative recapture of 6071 of the Code and Treas. Reg.
sections 3131(d) and 3132(d), and erroneous refunds of these credits. § 31.6071(a)–1. Employers use Form 941
including any increases in these credits to claim paid sick and family leave
Special Analyses
under section 3133, and any amount of credits and the employee retention
the employee retention credit for The Office of Management and
credit, as well as to report any advance
qualified wages under section 3134 of Budget’s Office of Information and
of these credits they received during the
the Code that are erroneously refunded Regulatory Analysis has determined that
calendar quarter. In filing their second
or credited to an employer shall be these temporary regulations are not
quarter 2021 Form 941, some employers
treated as underpayments of the taxes significant and not subject to review
may have already received, as an
imposed under section 3111(b) and so under section 6(b) of Executive Order
advance, refund amounts in excess of
much of the taxes imposed under 12866.
Pursuant to the Regulatory Flexibility the credits to which they are entitled. In
section 3221(a) as are attributable to the addition to the statutory authority
rate in effect under section 3111(b), as Act (5 U.S.C. chapter 6), the Secretary
certifies that these temporary provided by section 3134(j)(3) with
applicable, by the employer and may be regard to erroneous advance refunds of
administratively assessed and collected regulations will not have a significant
economic impact on a substantial the employee retention credit, these
in the same manner as the taxes. These temporary regulations authorize the
temporary regulations provide that the number of small entities because these
temporary regulations impose no assessment of any erroneous refunds of
determination of any amount of credits the credits. Without these temporary
erroneously refunded must take into compliance burden on any business
entities, including small entities. regulations, in some instances the IRS
account any credit amounts advanced to may not be able to avoid bringing costly
an employer under the process Although these temporary regulations
will apply to all employers eligible for and burdensome litigation to recover the
established by the IRS in accordance
the tax credits under sections 3131, erroneous refunds. Further, comments
with sections 3131(b)(4)(B),
3132, and 3134, including small are being solicited in the cross-
3132(b)(3)(B) and 3134(j)(2).
In certain situations, third-party businesses and tax-exempt referenced notice of proposed
payors claim tax credits on behalf of organizations with fewer than 500 rulemaking that is in this issue of the
their common law employer clients. employees, and will therefore be likely Federal Register, and any comments
These temporary regulations address to affect a substantial number of small will be considered before final
this situation by providing that entities, the economic impact will not regulations are issued.
employers against which an erroneous be significant. These temporary Statement of Availability of IRS
refund of credits may be assessed as an regulations do not affect the employer’s Documents
underpayment include persons treated employment tax reporting or the
as the employer under sections 3401(d), necessary information to substantiate IRS notices and other guidance cited
3504, and 3511, consistent with their entitlement to the credits. Rather, these in this preamble are published in the
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liability for the employment taxes temporary regulations merely Internal Revenue Bulletin (or
against which the credits applied. implement the statutory authority Cumulative Bulletin) and are available
Sections 3131(h) and 3132(h) provide granted under sections 3131(g), 3132(g), from the Superintendent of Documents,
that the paid sick and family leave and 3134(m) that authorize the IRS to U.S. Government Publishing Office,
credits apply to wages paid with respect assess, reconcile, and recapture any Washington, DC 20402, or by visiting
to a period of leave taken beginning on portion of the credits erroneously the IRS website at http://www.irs.gov.
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50642 Federal Register / Vol. 86, No. 173 / Friday, September 10, 2021 / Rules and Regulations
Drafting Information paragraph (a) of this section must take and so much of the taxes imposed under
The principal author of these into account any amount of credits section 3121(a) as are attributable to the
temporary regulations is NaLee Park, advanced to an employer under the rate in effect under section 3111(b), as
Office of the Associate Chief Counsel process established by the Internal applicable, include persons treated as
(Employee Benefits, Exempt Revenue Service in accordance with the employer under sections 3401(d),
Organizations, and Employment Taxes). sections 3131(b)(4)(B) and 3131(g)(6). 3504, and 3511, consistent with their
(c) Third party payors. For purposes liability for the section 3111(b) or
However, other personnel from the
of this section, employers against whom 3121(a) taxes against which the credit
Treasury Department and the IRS
an erroneous refund of the credits under
participated in the development of these applied.
section 3131 (including any increases in
temporary regulations. (d) Applicability date. This section
those credits under section 3133), can
List of Subjects in 26 CFR Part 31 be assessed as an underpayment of the applies to all credit refunds under
Employment taxes, Income taxes, taxes imposed under section 3111(b) section 3132 (including any increases in
Penalties, Pensions, Railroad retirement, and so much of the taxes imposed under those credits under section 3133)
Reporting and recordkeeping section 3221(a) as are attributable to the advanced or paid on or after April 1,
requirements, Social security, rate in effect under section 3111(b), as 2021.
Unemployment compensation. applicable, include persons treated as
■ Par. 4. Section 31.3134–1T is added to
the employer under sections 3401(d),
Adoption of Amendments to the 3504, and 3511, consistent with their read as follows:
Regulations liability for the section 3111(b) or § 31.3134–1T Recapture of credits.
Accordingly, 26 CFR part 31 is 3121(a) taxes against which the credit
amended as follows: applied. (a) Recapture of erroneously refunded
(d) Applicability date. This section credits. Any amount of credits for
PART 31—EMPLOYMENT TAXES AND applies to all credit refunds under qualified wages under section 3134 of
COLLECTION OF INCOME TAX AT section 3131 (including any increases in the Code that is treated as an
SOURCE those credits under section 3133), overpayment and refunded or credited
advanced or paid on or after April 1, to an employer under section 6402(a) or
■ Paragraph 1. The authority citation 2021. section 6413(b) of the Code and to
for part 31 is amended by adding entries ■ Par. 3. Section 31.3132–1T is added to which the employer is not entitled,
for §§ 31.3131–1T, 31.3132–1T, and read as follows: resulting in an erroneous refund to the
31.3134–1T in numerical order to read
§ 31.3132–1T Recapture of credits. employer, shall be treated as an
in part as follows:
(a) Recapture of erroneously refunded underpayment of the taxes imposed
Authority: 26 U.S.C. 7805. under section 3111(b) and so much of
credits. Any amount of credits for
* * * * * the taxes imposed under section 3221(a)
Section 31.3131–1T also issued under 26
qualified family leave wages under
sections 3132, including any increase to as are attributable to the rate in effect
U.S.C. 3131(g).
Section 31.3132–1T also issued under 26 the amount of the credits under sections under section 3111(b), as applicable,
U.S.C. 3132(g). 3132(d), 3132(e), and 3133, that are and may be assessed and collected by
Section 31.3134–1T also issued under 26 treated as overpayments and refunded the Secretary in the same manner as the
U.S.C. 3134(m)(3). or credited to an employer under taxes.
* * * * * section 6402(a) or section 6413(b) and to (b) Advance credit amounts
■ Par. 2. Section 31.3131–1T is added to which the employer is not entitled, erroneously refunded. The
read as follows: resulting in an erroneous refund to the determination of any amount of credits
employer, shall be treated as an erroneously refunded as described in
§ 31.3131–1T Recapture of credits. underpayment of the taxes imposed paragraph (a) of this section must take
(a) Recapture of erroneously refunded under section 3111(b) and so much of into account any amount of credits
credits. Any amount of credits for the taxes imposed under section 3221(a)
qualified sick leave wages under section advanced to an employer under the
as are attributable to the rate in effect
3131(a), including any increase to the process established by the Internal
under section 3111(b), as applicable,
amount of the credits under sections and may be assessed and collected by Revenue Service in accordance with
3131(d), 3131(e), and 3133, that are the Secretary in the same manner as the sections 3134(j) and 3134(m).
treated as overpayments and refunded taxes. (c) Third party payors. For purposes
or credited to an employer under (b) Advance credit amounts of this section, employers against whom
section 6402(a) or section 6413(b) and to erroneously refunded. The an erroneous refund of the credits under
which the employer is not entitled, determination of any amount of credits section 3134 can be assessed as an
resulting in an erroneous refund to the erroneously refunded as described in underpayment of the taxes imposed
employer, shall be treated as an paragraph (a) of this section must take under section 3111(b) and so much of
underpayment of the taxes imposed into account any amount of credits the taxes imposed under section 3121(a)
under section 3111(b) and so much of advanced to an employer under the as are attributable to the rate in effect
the taxes imposed under section 3221(a) process established by the Internal under section 3111(b), as applicable,
as are attributable to the rate in effect Revenue Service in accordance with include persons treated as the employer
under section 3111(b), as applicable, sections 3132(b)(3)(B) and 3132(g)(6). under sections 3401(d), 3504, and 3511,
and may be assessed and collected by (c) Third party payors. For purposes
consistent with their liability for the
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the Secretary in the same manner as the of this section, employers against whom
an erroneous refund of the credits under section 3111(b) or 3121(a) taxes against
taxes.
(b) Advance credit amounts section 3132 (including any increases in which the credit applied.
erroneously refunded. The those credits under section 3133), can (d) Applicability date. This section
determination of any amount of credits be assessed as an underpayment of the applies to all credit refunds under
erroneously refunded as described in taxes imposed under section 3111(b)
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Federal Register / Vol. 86, No. 173 / Friday, September 10, 2021 / Rules and Regulations 50643
section 3134 advanced or paid on or (MDAQMD or District) portion of the www.regulations.gov, or please contact
after July 1, 2021. California State Implementation Plan the person identified in the FOR FURTHER
(SIP). This revision concerns oxides of INFORMATION CONTACT section for
Douglas W. O’Donnell,
nitrogen (NOX) emissions from additional availability information. If
Deputy Commissioner for Services and
Enforcement.
stationary internal combustion engines. you need assistance in a language other
Under the authority of the Clean Air Act than English or if you are a person with
Approved: August 18, 2021.
(CAA or the ‘‘Act’’), this action approves disabilities who needs a reasonable
Mark J. Mazur, a local rule that regulates these emission accommodation at no cost to you, please
Acting Assistant Secretary of the Treasury sources into the federally-enforceable contact the person identified in the FOR
(Tax Policy).
SIP, thereby strengthening the SIP, FURTHER INFORMATION CONTACT section.
[FR Doc. 2021–19524 Filed 9–8–21; 4:15 pm] while identifying deficiencies with the
BILLING CODE 4830–01–P FOR FURTHER INFORMATION CONTACT:
rule that must be corrected by the
Kevin Gong, EPA Region IX, 75
MDAQMD in order for the EPA to grant
Hawthorne St., San Francisco, CA
full approval of the rule.
ENVIRONMENTAL PROTECTION 94105. By phone: (415) 972–3073 or by
AGENCY DATES: This rule will be effective on email at gong.kevin@epa.gov.
October 12, 2021.
SUPPLEMENTARY INFORMATION:
40 CFR Part 52 ADDRESSES: The EPA has established a Throughout this document, ‘‘we,’’ ‘‘us’’
[EPA–R09–OAR–2021–0333; FRL–8609–02– docket for this action under Docket No. and ‘‘our’’ refer to the EPA.
R9] EPA–R09–OAR–2021–0333. All
documents in the docket are listed on Table of Contents
Air Plan Limited Approval and Limited the https://www.regulations.gov I. Proposed Action
Disapproval, California; Mojave Desert website. Although listed in the index, II. Public Comments and EPA Responses
Air Quality Management District some information is not publicly III. EPA Action
available, e.g., Confidential Business IV. Incorporation by Reference
AGENCY: Environmental Protection
Information (CBI) or other information V. Statutory and Executive Order Reviews
Agency (EPA).
ACTION: Final rule.
whose disclosure is restricted by statute. I. Proposed Action
Certain other material, such as
SUMMARY: The Environmental Protection copyrighted material, is not placed on On June 1, 2021 (86 FR 29227), the
Agency (EPA) is finalizing a limited the internet and will be publicly EPA proposed a limited approval and
approval and limited disapproval of a available only in hard copy form. limited disapproval of the following
revision to the Mojave Desert Air Publicly available docket materials are rule that was submitted for
Quality Management District’s available through https:// incorporation into the California SIP.
TABLE 1—SUBMITTED RULE
Rule # Rule title Amended Submitted
1160 ................................................. Internal Combustion Engines .................................................................... 01/22/2018 05/23/2018
We proposed a limited approval enforceable emission limitation, control also allows for units operating at the
because we determined that this rule measure, means or technique, as same facility to aggregate their
improves the SIP and is largely required under section 110(a)(2) of the emissions in order to comply with the
consistent with the relevant CAA Act. Furthermore, the rule leaves the percentage reduction. This type of
requirements. We simultaneously approval of the NOX emission reduction provision (emissions aggregation)
proposed a limited disapproval because alternative to the District without EPA constitutes an economic incentive
some rule provisions conflict with review or approval of the alternative program (EIP) under the EPA’s 2001 EIP
section 110 and part D of the Act. The into the SIP. Because the rule is not guidance.1 As discussed in the proposed
following provisions do not satisfy the clear with respect to how to calculate rule, the rule provisions do not meet the
requirements of section 110 and part D the baseline emission rate, and the criteria for EIP integrity because they
of title I of the Act and prevent full approval of an alternative limit lies fail to require that any excess emission
approval of the SIP revision. solely with the District, this provision reductions credited through the
1. MDAQMD Rule 1160 section allows for overbroad discretion on the provision be surplus (i.e., not required
part of the Director to modify by any other federally enforceable
(C)(2)(b) allows for engines to comply
requirements of the SIP without the provision). This omission could allow
with an alternative emission reduction
procedures required under section 110 reductions that are otherwise federally
provision instead of the concentration-
of the Act. In addition, the ambiguous required to be aggregated and therefore
based emission limits for NOX.
alternative emission reduction provision allow greater emissions at other units.
Specifically, this alternative provision
could allow many units to emit more 3. The compliance determination
allows for owners or operators of
than the concentration limit in the rule requirements described in section
applicable equipment to submit a plan
by, in some cases, more than two times. (E)(1)(c) do not require adequate source
for alternative emissions reduction that
Additionally, the alternative limits have testing for emission units without
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would achieve an 80% or 90%
not been justified as meeting the emission control equipment. The
reduction of emissions from a baseline requirements do not specify any
emission rate. Because the rule does not reasonably available control technology
clearly specify how to calculate the (RACT) requirement.
1 ‘‘Improving Air Quality with Economic
baseline emission rate, the rule is not 2. Under section (C)(2)(b)(v), the Incentive Programs’’ (EPA–452/R–01–001, January
sufficiently clear to constitute an alternative emission reduction option 2001).
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