On November 15, 2021, President Joe Biden signed the Infrastructure Investment and Jobs Act (H.R. 3684) into law. This legislation contains a provision that terminates the employee retention credit (ERC) early, retroactively to October 1, 2021. The ERC was originally set to expire on December 31, 2021.
The American Rescue Plan Act (ARPA) added a new type of employer that may be eligible for the ERC, a recovery startup business. A recovery startup business is a business that began its operations after February 15, 2020, had average annual gross receipts of less than $1 million, and did not otherwise qualify for the credit. For these businesses, a credit of up to $50,000 for each of the third and fourth quarters of 2021 is available. The Infrastructure Investment and Jobs Act did not terminate the ability of a recovery startup business from claiming the credit in Q4 2021.
As a result of this early termination, the IRS may need to amend certain employment tax forms such as Form 941 (Employer’s Quarterly Federal Tax Return) and Form 7200 (Advance Payment of Employer Credits Due to COVID-19). Be on the lookout for updated forms when filing your Q4 Form 941.
The bill language does not address penalty relief for those employers already claiming the ERC for the fourth quarter of 2021 and not making deposits. The IRS will likely need to issue additional guidance, hopefully, to provide relief for not making timely deposits of withheld taxes.
The ERC is still available for qualified wages paid from March 13, 2020 through September 30, 2021.
We will continue to monitor these developments. If your company has questions or concerns regarding the ERC, contact your GBQ tax advisor.
Article written by:
Sara Goldhardt, CPA
Director, State & Local Tax Services