Infrastructure Bill Repeals the Employee Retention Credit for Q4 of 2021 – Opportunities Remain

In March 2020, the CARES Act created the Employee Retention Credit (“ERC”). The ERC was intended to help businesses and organizations avoid layoffs during the COVID-19 pandemic. The ERC was subsequently amended by the Consolidated Appropriations Act, 2021, and the American Rescue Plan Act, extending the ERC’s benefits for all of 2021. The ERC is a fully refundable payroll tax credit for employers that experienced either partially or fully suspended operations due to restrictions imposed by the government or a significant decline in gross receipts during the COVID-19 pandemic. On November 15, President Biden signed into law the Infrastructure Investment and Jobs Act, eliminating the ERC for the fourth quarter of 2021, except for Recovery Start Up Businesses (“RSBs”). An RSB is an employer that began carrying on a trade or business after Feb. 15, 2020, and had average annual gross receipts of not more than $1 million. For RSBs, the ERC is limited to maximum $50,000 credit for all employees per quarter.

Opportunities remain for eligible employers to claim the ERC for calendar quarters prior to Q4 2021. For the first three quarters of 2021, eligible employers can still claim a maximum payroll tax credit of $7,000 per employee per quarter. For the entire year 2020, the maximum credit is $5,000 per employee. Therefore, if an employer is eligible for both 2020 and 2021, the maximum credit it can claim is $26,000 per employee. Eligible employers can claim the ERC on wages that are not used toward payroll costs when applying for PPP forgiveness.  In order to claim the ERC for previously filed quarters, a Form 941-X must be filed. Although the Q4 2021 ERC has been repealed, the ERC provides an unprecedented opportunity for eligible businesses and organizations to offset revenue declines during the COVID-19 pandemic.