UPDATE: The U.S. House of Representatives passed the Infrastructure Investment and Jobs Act – H.R. 3684 on November 5, 2021. The current version of the bill contains a provision that would terminate the COVID-19 pandemic Employee Retention Credit (ERC) as of the end of the third quarter of 2021 for most employers, except for a recovery startup business. For a recovery startup business, the ERC remains available through December 31, 2021. President Joe Biden signed this bill into law on November 15, 2021.
When enacted in March of 2020, the Employee Retention Credit (ERC) generated significant interest from businesses across the U.S. But initially, those that received Paycheck Protection Program (PPP) loans were ineligible for the ERC. That restriction eliminated a substantial number of companies from the list of those that could possibly claim the ERC. But the Consolidated Appropriations Act (Act), signed into law at the end of December 2020, changed the game. That Act removed the PPP restriction and made the ERC available to thousands of more businesses across the nation. And further, the ERC was extended to the end of 2021 by the American Rescue Plan Act of 2021. It has since been one of the hottest topics of 2021.
Throughout 2021, the IRS published three rounds of guidance on the ERC. Many have asked – will there be more? – as there are several aspects of the ERC that still remain somewhat unclear. However, an agency official from the IRS recently stated that the IRS has no plans to release additional information on the ERC, assuming there are no significant changes in the law. That means that taxpayers and practitioners must continue moving forward with the existing guidance.
When is the ERC set to end?
Currently, the ERC is set to end with the fourth quarter of 2021, as qualified wages paid through December 31, 2021, can be used for the ERC if a business meets one of the two credit eligibility requirements. However, there is a provision in the proposed infrastructure bill that would end the ERC early on September 30, 2021, the end of the third quarter, except for those businesses classified as startup recovery businesses. As of the date of this article, we are already almost a month into the fourth quarter, and it is not certain if this popular tax credit program will end early. An early ending could be problematic for those businesses that have already planned on receiving the credit through the end of the year. GBQ is monitoring the status of the infrastructure bill and will provide updates when available.
Is there still time to claim the ERC for prior quarters?
Absolutely! There is still time to claim the ERC for all available quarters in 2020 and 2021. This tax credit program is very valuable and can help businesses in numerous industries that are still struggling from the impacts of COVID-19. Substantial credits – into the millions of dollars – may be available for those businesses that have either experienced a significant decline in gross receipts compared to 2019 or that were fully or partially impacted by COVID-related government orders. Even if your company thinks it’s not eligible, it’s worth a second look. In addition, some that weren’t eligible for 2020 or for an earlier quarter in 2021 may be eligible now. Contact the GBQ ERC team to discuss your company’s eligibility for the ERC.
Article written by:
Sara Goldhardt, CPA
Director, State & Local Tax Services