By Robert Jackson and Kathy Davis
While the Infrastructure Bill passed by the House on Friday, November 5, did not contain much in the way of tax legislation, it did retroactively put an end to the Employee Retention Credit (ERC) as of the end of the 3rd quarter for all employers other than “recovery startup businesses.” The credit was already set to expire for all employers after the 4th quarter of 2021 anyways, so the bill effectively ends the program a quarter early for most employers.
The bill was previously passed by the Senate back in August – hence the reason for the retroactive date. Thus, the bill will become law once the President signs it, which is expected to occur later this week or next week.
As noted above, the retroactive change does not apply for recovery startup businesses – so the credit is still available in the 4th quarter of 2021 for these companies. Generally, you must have begun your business after February 15, 2020, and meet certain receipts tests in order to qualify as a “recovery startup business.” You should consult with your tax advisor to determine if you qualify under this exception.
For those of you who have been reducing deposits in October and November in anticipation of claiming the credit – you should plan for reimbursing the government as soon as possible to mitigate penalties, despite the fact that the President has yet to sign the bill. Once the President signs the bill, those companies who reduced the deposits (as well as other responsible persons) may be subject to penalties and interest on top of paying back the tax. The potential goods news here is that while the IRS must follow the retroactive date in disallowing the credit, they do have the power to reduce or eliminate penalties on payroll tax deposits in situations such as this one.
As always, please contact your AGP team member with questions specific to your business.
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