As we’ve discussed previously several times over the last 18 months, some employers with full or partial government restrictions on operations or significant declines in gross receipts have been able to claim a 70% employee retention tax credit (50% in 2020) on some wages and benefits paid for those taking leaves (such as furloughs or quarantines). Some employers are small enough (100 or fewer in 2020, 500 or fewer in 2021) to claim it even on some wages and benefits paid while working and not just for those on leave.
This employee retention credit (ERC) was modified and extended to last through the end of 2021, but we had mentioned in our August update how the “IRS notes the ERC may be restricted to just startup recovery businesses for the fourth quarter under infrastructure legislation.” Sure enough, that came to pass. The new infrastructure bill which the US Senate passed in August, the US House passed late November 5, 2021, and the President has said he intends to sign into law Monday, November 15, restricts fourth quarter ERC eligibility to just startup recovery businesses, meaning all other employers that had been able to previously claim the credit can no longer claim the ERC for fourth quarter 2021 wages and benefits.
Affected employers that had withheld credits from their payroll taxes in anticipation of this credit for the fourth quarter will need to pay those taxes in. An employer that qualified for the ERC but failed to claim it appear to have three years from the program’s sunset date of September 30, 2021, to file an amended Form 941-X for the respective quarters for which they’d like to claim the credits. We encourage you to work with your tax advisor to ensure you qualify and meet appropriate filing deadlines.
The act also creates additional workforce development grants which may be of help to employers. These will fall under the Department of Transportation, Department of Energy, and Environmental Protection Agency, to address surface transportation, energy efficiency, and water/wastewater.
IMA will continue to monitor regulator guidance and offer meaningful, practical, timely information.
This material should not be considered as a substitute for legal, tax and/or actuarial advice. Contact the appropriate professional counsel for such matters. These materials are not exhaustive and are subject to possible changes in applicable laws, rules, and regulations and their interpretations.