The recently passed Infrastructure Investment and Jobs Act (HR 3684) was not focused primarily on tax but did include a provision ending the Employee Retention Tax Credit (ERC) earlier than planned.
Under pre-Act law, eligible employers can claim the ERC for wages paid before January 1, 2022 against applicable employment taxes. For each calendar quarter in 2021, the amount of the credit is 70% of qualified wages paid (up to $10,000) for each employee. However, under the new law, the credit will not apply to wages paid in the fourth quarter of 2021. Exceptions to this will include employers who fit the definition of a recovery start-up business, which is generally a business with gross receipts of less than $1 million that began their trade or business after February 15, 2020. IRS Notice 2021-49 outlines more detailed requirements to qualify as a recovery start-up business.
We will be watching for updated guidance from the IRS on the treatment of penalties for late deposit of payroll taxes for those companies who anticipated the credit and reduced their payroll tax deposits.
ERC is still applicable to wages paid through September 30, 2021, and is a significant tax break eligible businesses should not ignore. We have assisted many clients in determining eligibility and computing the credit potential for 2020 and 2021.
To discuss any questions you may have, please contact a member of your engagement team or reach out to us via our website.