Infrastructure Bill Passed Ends Employee Retention Tax Credit

The much-debated Infrastructure Investment and Jobs Act, approved by the Senate in August, was passed by the House of Representatives 228-206 on Friday night.  The bill will become law when it is signed by President Biden this week.

With the primary focus on roads, bridges, public works systems, and broadband Internet, there are very few tax provisions in this piece of legislation.  A separate 2022 budget reconciliation bill currently being considered by Congress is expected to address items such as Earned Income Tax Credit, Child Tax Credit, interest expense deduction limits, corporate and international tax law changes, and the $10,000 cap on state and local tax deductions.

There is a provision in this bill, however, which terminates the Employee Retention Tax Credit (ERTC) 90 days earlier than anticipated.

BACKGROUND

The ERTC, part of the CARES Act passed on March 26, 2020, originally allowed qualifying businesses a payroll tax credit on eligible wages paid between March 12, 2020 and December 31, 2020.  The Consolidated Appropriations Act (December 2020) extended the ERTC through June 30, 2021, and the American Rescue Plan Act (March 2021) further extended the credit on wages paid through December 31, 2021.  The new law rolls back the termination date of the credit to September 30, 2021.

NEXT STEPS

It is important to note that eligible businesses may still file amended payroll tax returns to obtain the credit for qualifying periods in 2020 and 2021.  However, any wages paid after September 30, 2021 will not be eligible for the credit.

There are two ways to qualify for the credit – by way of a “significant decline in gross receipts” in 2020 or 2021 compared to 2019, or because of government restrictions imposed due to the coronavirus pandemic.  The gross receipts tests are intricate and vary from 2020 to 2021, as do the amounts of the credits.  For 2020, the credit is 50% of eligible wages up to $10,000 per employee for the calendar year.  For 2021, the credit is 70% of eligible wages up to $10,000 per person per quarter.  Wages used for ERTC cannot also be used toward PPP loan forgiveness or any other tax credits.  Therefore, detailed analyses must be performed to document the segregation of wages used for each program and to maximize the amount of ERTC claimed.

HOW KATZABOSCH CAN HELP

If there is a possibility you may qualify for ERTC in 2020 or 2021, please contact your KatzAbosch representative or contact us here.  We are utilizing ERTC to increase cash flow for many of our clients whose revenue has been impacted by the pandemic.