Infrastructure Law Repeals Employee Retention Tax Credit for Fourth Quarter 2021 by Andrew Leonard, CPA
Posted on November 22, 2021
by
Andrew Leonard
Included in the $1 trillion U.S. Infrastructure Investment and Jobs Act (IIJA) signed into law on Nov. 15, 2021, is an early termination of the employee retention tax credit (ERTC) that has helped incentivize qualifying businesses and not-for-profits to keep employees on payroll through the COVID-19 pandemic. Under the Act, the availability of the ERTC will retroactively end on Sept. 30, 2021, three months earlier than planned, for employers that do not qualify as “recovery start-up businesses.”
Congress greatly expanded the ERTC since first introducing it as part of the CARES Act in March 2020. At the time, eligible employers could qualify for a refundable payroll tax credit of as much as $5,000 per employee through the end of 2020 when they continued to pay employee wages and health plan expenses despite a full or partial suspension of their business operations or a significant reduction in gross receipts.
For 2021, Congress increased the amount of the credit to a maximum of $7,000 per employee for each of the four quarters of 2021 (or $28,000 per employee for the year) when employers’ gross receipts for any quarter in 2021 fall 20 percent or more from the same quarter in 2019. At the same time, the credit was made available to businesses that received government-backed Paycheck Protection Program (PPP) loans.
However, with the recent enactment of the IIJA, the maximum credit available to eligible employers in 2021 is $21,000 per employee through the end of the third quarter unless they qualify as recovery start-up businesses (RSBs), which are permitted to take the ERTC for wages paid through the end of the fourth quarter of 2021. Therefore, an established employer with 50 employees could be entitled to receive $250,000 in refundable ERTCs in 2020 plus an additional $1.05 million through the third quarter of 2021. However, if the employer qualifies as an RSB, it may receive as much as $1.4 million in refundable ERTCs for all of 2021.
Employers that erroneously retained employees’ federal payroll taxes and reduced the amount deposited with the U.S. Treasury in anticipation of receiving the ERTC after Sept. 30, 2021, should speak with their advisors and accountants to immediately rectify the matter. This will entail repaying deferred payroll taxes and advances of the ERTC to avoid the imposition of penalties and interest on unpaid amounts, which could significantly impact liquidity and access to working capital.
About the Author: Andrew Leonard, CPA, is a director with Berkowitz Pollack Brant’s International Tax Services practice, where he provides tax structuring, pre-immigration planning and a wide array of international tax and consulting services to international companies, entrepreneurs, families and foreign trusts. He can be reached at the CPA firm’s Ft. Lauderdale, Fla., office at (954) 712-7000 or info@bpbcpa.com.
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