On August 10th, the US Senate passed the bipartisan Infrastructure Investment and Jobs Act (“Infrastructure Bill”). While much of the Infrastructure Bill focuses on funding for roads, bridges, electric vehicles, high-speed internet, and modernization of electrical grid, it also includes some substantial changes to various tax provisions including the Employee Retention Credit and a new cryptocurrency reporting requirement.
Employee Retention Credit
The employee retention tax credit (“ERC”) was originally enacted under the CARES Act, signed into law by President Trump in March 2020. The ERC provided a refundable tax credit to employers against certain employment tax obligations for retaining their employees during the coronavirus pandemic. The ERC has undergone a few changes since its original enactment including beneficial changes to the eligibility, maximum credit per employee, and ability to use the ERC in conjunction with the Paycheck Protection Program.
Under current law, the credit is available through December 31, 2021, with a maximum credit of up to $7,000 per employee for each quarter (maximum credit $50,000 for an eligible recovery startup business). For 2021, an employer is eligible for the ERC if it:
- Carried on a trade or business during the calendar year 2020, and
- with respect to any calendar quarter was either (a) fully or partially suspended due to a governmental order related to COVID-19, or (b) had a significant decline in gross receipts.
Early Elimination of Employee Retention Credit
Under the recently passed Infrastructure bill, the ERC would effectively end on September 30, 2021, with an exception for recovery startup businesses. Therefore, any wages paid in the fourth quarter of 2021, would no longer be eligible for the credit. Under the bill, recovery startup businesses would remain eligible for the credit through December 31, 2021. A recovery startup business is a business that began doing business after February 15, 2020 and has average annual gross receipts less than $1 million.
Currently, the House has not yet taken up the Infrastructure bill, so it is unknown whether the proposed changes to the employee retention credit would be effective. However, in anticipation of this change, employers should take a close look at whether they are taking the necessary steps to maximize the value of the employee retention credit.
Maximizing the Employee Retention Credit
Employers can maximize their credit by considering the following:
- Am I eligible for the employee retention tax credit based on the rules applicable for 2020 or 2021?
- Since the ERC is a refundable tax credit, did I request an advance refund of credits by filing Form 7200, Advance Payment of Employer Credits Due to COVID-19?
- If I received a PPP loan, did I appropriately allocate qualified wages to the ERC, in order to maximize my ERC and then allocate the remaining to the PPP loan forgiveness?
As the employee retention credit begins to wind down, employers should ensure that they are maximizing their efforts to ensure that they are taking full advantage of the credit prior to the proposed end date of September 31, 2021. If you have questions on the employee retention credit please contact Demetrius Robinson at (614) 427-5749 or djr@kjk.com or one of our Tax professionals.