New Infrastructure Act Will End the Employee Retention Credit Early
The ERC is a credit provided under section 2301 of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) and then amended by the Taxpayer Certainty and Disaster Relief Act of 2020, with the credit available for wages paid through December 31, 2021. Under the IIJA, the ERC will now apply only to wages paid through September 30, 2021, unless the employer is a recovery startup business.
The IIJA defines a “recovery startup business” as a business that:
- Began carrying on any trade or business after February 15, 2020; and
- Had average annual gross receipts of less than $1 million.
Prior to the IIJA, an organization could not qualify as a recovery startup business if it met the ERC eligibility requirement due to a full or partial suspension of operations under a government order or a significant decline in gross receipts. The IIJA relaxes this requirement. As a result, it is possible that an employer that did not qualify as a recovery startup business in the third quarter of 2021 could qualify in the fourth quarter of 2021 and be eligible to claim the ERC for that quarter.
We anticipate the IRS will provide further guidance for employers.
If your organization retained payroll taxes in anticipation of receiving the ERC based on payroll taxes after September 30, 2021, it is important to determine how and when to repay these taxes and identify and address any compliance issues.
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