The $1.2 trillion Infrastructure Investment and Jobs Act signed into law by President Biden contains a provision effectively ending the Employee Retention Credit, also known as the Employee Retention Tax Credit (ERTC).
A Change to the Employee Retention Tax Credit (ERTC)
Earlier this year, the ERTC had been extended, allowing businesses to claim the credit through the end of the year. Instead, the bill retroactively backdates the ending date for claiming the credit to September 30, 2021.
With most other COVID-relief measures for businesses having already ended, the ERTC program was one of the only opportunities left for businesses to rebuild in the wake of COVID lockdowns. The change is expected to hit restaurants the hardest as they continue to struggle due to employee shortages and other COVID related issues.
However, the provision leaves open the opportunity for employers qualifying as a “recovery startup business under Section 3134(c)(5) of the Code.
Initially, the ERTC, enacted as part of the CARES Act passed in March 2020, allowed businesses to claim up to $5,000 per employee in tax credits for wages paid to employees if they suffered a reduction in revenue in 2020.
The original threshold for revenue reduction was 50%, meaning a business reporting a 50% revenue reduction from the prior year was eligible for the credit. The requirement was later broadened to allow businesses with a 20% reduction to qualify for the credit.
In addition, the available tax credit was increased to 70% of $10,000, or $7,000 per quarter, up from 50% of $10,000. Also, the number of employees that defined an eligible small business was increased to 500 from 100.
Claim Employee Retention Credit For Previous Quarters
Although the Employee Retention Credit ends on September 30, 2021, businesses will be able to make a claim for up to three years after filing their quarterly 941 2021 employment tax returns.
Contact Glass Jacobson if you need help taking advantage of the employee retention credit.
See IRS.gov for guidance on retroactive termination of the Employee Retention Credit.
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