UPDATE: President Biden signed into law the $1 trillion infrastructure bill cited below on Monday, November 15, 2021.

If your business has been claiming the Employee Retention Tax Credit (ERTC) for wages paid this year, it’s time to stop. The infrastructure bill, as passed by the Senate in August and the House on November 5, 2021, ends the ERTC for wages paid after September 30, 2021—which is one calendar quarter earlier than the end date of December 31, 2021 set forth in the American Rescue Plan Act (ARPA). As of this writing, the bill has not yet been officially signed into law, however President Biden has signaled he would sign the infrastructure bill during the week of November 8, 2021 or when Congress reopens the week of November 15, 2021.

Many knew this day was coming, as the infrastructure bill passed by the Senate in August included the early termination of the ERTC. However, it took the House several months of political wrangling before finally passing the $1.2 trillion infrastructure bill to upgrade America’s roads, bridges, airports, seaports, and more representing the “largest transportation spending package in U.S. history”. To pay for the package, Congress decided to repurpose more than $200 billion in untapped COVID-19 relief funds. It’s estimated that the federal government will save more than $8 billion by ending the ERTC early. 

The Employee Retention Tax Credit was originally designed to help keep employees on company payrolls throughout the COVID-19 pandemic and had the potential to be a large source of financial relief for eligible businesses. Former lawmakers, business advocates, and nonprofit associations have sounded the alarm and requested that these much-needed funds be reinstated since the current economic picture is dimmer than it was in July. 

In this article, we’ll explain what’s on the line for the ERTC including revised eligibility dates and what your business needs to do now to maintain compliance.

Revisions to ERTC

Under the American Rescue Plan Act passed in March 2021, the ERTC was originally scheduled to run through December 31, 2021. Once the infrastructure bill is signed into law, the ERTC will go away retroactively and end on September 30, 2021—the end of the third quarter. This effectively reduces the incentive per employee for the year from $28,000 to $21,000.

The Journal of Accountancy notes that “the IRS issued guidance on claiming the credit in the third and fourth quarters of 2021 but noted in that guidance that it is watching this legislative development.” (See IRS Notice 2021-49). Changing the rules in the middle of a tax year could complicate matters for both the IRS and businesses still relying on the credit.

Problems with early termination of ERTC

According to the National Law Review, if the infrastructure bill is signed into law with the early ERTC termination provision intact, there will be no credit for wages paid in the fourth quarter of 2021. “Exacerbating this problem is a company’s ability to monetize the credit every payroll period:” The ERTC is claimed on the quarterly payroll tax return, Form 941, but the rule allowed a company to hold onto the federal payroll taxes withheld from an employees’ wages instead of depositing those funds with the US Treasury as usually required. As a result, some businesses may not have deposited tax withholding obligations because of the anticipated credit. In this case, these businesses will need to pay back those payroll taxes and potentially a 10% penalty if the penalty is not waived under this new ERTC early termination.

Some legal experts recommended that businesses proceed into the fourth quarter with a working assumption that ERTC would be terminated effective October 1, 2021. In this case, all taxes withheld from employee wages would be deposited and the business would remain in compliance. If your business did not follow this course of action, be sure to consult a tax advisor, accountant, and/or legal counsel to ensure you take the proper corrective action to get in compliance and work with the IRS to minimize or avoid penalties.

With early termination, how much relief can a business expect in 2021?

In 2021, eligible employers with 500 or fewer employees can claim 70% of the first $10,000 in qualified wages for each employee in every quarter. It is a refundable, advanceable credit that will cover up to $7,000 in wages per quarter or $21,000 per year for each employee. 

While many businesses applaud the passage of the infrastructure bill, they are also requesting that Congress take action to ensure access to ERTC throughout the end of the year. The National Automatic Merchandising Association (NAMA), along with former lawmakers and other associations and businesses, had been advocating to protect the ERTC for the fourth quarter—NAMA estimates that it would have provided $196 million in assistance for the convenience services industry alone. 

Since reinstatement doesn’t look likely, some analysts recommend that businesses take a “hard look at whether they qualify for ERTC for the first three quarters of 2021 (and 2020)” if they haven’t already. In a post for Forbes, contributor Dean Zerbe notes that in his work, he finds that approximately 70% of businesses qualify for ERTC either because of a reduction in revenues or material impact. Be sure to check if your business qualifies; if so, retroactively take advantage of the benefits available for the first three quarters of 2021.

How quickly can my business expect to receive ERTC advance payments?

The IRS is experiencing backlogs in processing 941-X returns, so businesses may have to wait up to 120 days to receive any retroactive payments from the IRS. 

Need help with ERTC?

Pandemic relief programs and funds are about to disappear. If you think your business qualifies, the clock is ticking. Do you know how to claim the ERTC for the first three quarters of 2021? Does your business need to take corrective action regarding your ERTC fourth quarter credits? 

If your company needs help, Asure can assist with reviewing qualified wages, calculating the credits, and filing the necessary forms that allow you to claim your ERTC credits with the IRS. We can also help ensure you’re taking the right steps to maintain compliance.

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