Early End to the Employee Retention Credit
On November 5, 2021, the House passed the Infrastructure Investment and Jobs Act (the Act), comprehensive legislation that calls for a $1.2T investment in the nation’s aging infrastructure. Initially, there will be $550B allocated over five years to upgrade bridges, roads, transit, rail, water systems, electrical grids, and broadband. Additional money will be set aside for items like the purchase of zero and low-emission buses, ferries, and electric school buses. While these investments are welcome news for many states struggling with dilapidated infrastructure, it does come at a cost – beginning with rescinding funds currently available through SBA loan programs and the early termination of the Employee Retention Credit (ERC).
Once the Act is signed into law by President Biden, the ERC will have ended effective September 30, 2021, meaning that any 4th quarter advances already received will need to be reimbursed to the IRS. In addition, only Recovery Startup Businesses (those that began carrying on a trade or business after February 15, 2020, therefore cannot meet the qualifications of the gross receipts test; and one that has average annualize gross receipts of $1M or less for the duration of the business’ existence) will be able to claim the credit for the 4th quarter. Let’s take a closer look at the premature end of the ERC.
What Does Early Termination Mean?
It means businesses can no longer claim the credit for eligible wages in the 4th quarter of 2021. Therefore, companies expecting to receive this tax benefit will no longer be able to do so. However, if you have already submitted an amended 941 to take the credit for a previous quarter, don’t fret; the last quarters still qualify for the Employee Retention Credit. Moreover, even though the credit is ending early, this does not mean the savings opportunity is lost. Eligible employers can still claim the credit retroactively for the first three quarters of 2021. In addition, the same eligibility criteria and per credit maximums ($7,000 per employee, per quarter) apply just as before the Act’s passage. Additionally, any credit received still reduces payroll tax expenses claimed by the business.
Is it Too Late to Claim the Credit?
If you have not looked into whether or not your business qualifies for the employee retention credit, you are not too late. Generally, you have three years from the payroll tax return due date to amend the return to take the ERC. However, with the long processing times at the IRS and if your business needs cash flow it is better to apply sooner rather than later.
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If you have questions about the early termination of the ERC or if you need assistance calculating or claiming the credit, click here to contact us. We look forward to speaking with you soon.
©2021 Klatzkin & Company LLP. The above represents our best understanding and interpretation of the material covered as of this post’s date. The content is provided for informational purposes only and does not constitute accounting, tax, or financial advice. Please consult your advisor concerning your specific situation.