Biden Signs Infrastructure Bill and Sunsets the ERC

While the newly enacted $1.2 trillion federal infrastructure law allocates significant funding to upgrading America’s roads and bridges and mitigating climate change, one provision was unwelcome for businesses that qualified for the Employee Retention Credit (ERC).

The ERC will expire three months earlier than expected under the Infrastructure Investment and Jobs Act (IIJA), which became law in early November. The Act set the retroactive date of ERC credit termination on September 30, 2021, rather than keeping the ending date at December 21, 2021.

The ERC was created in March 2020 as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act to help businesses retain workers. Eligible employers received a credit against their share of the Social Security taxes on qualified wages paid to workers retained during 2020. The Consolidated Appropriations Act 2021 (CAA) and the American Rescue Plan Act of 2021 (ARPA) expanded eligibility for the ERC. They specified that eligible employers could claim the ERC on qualified wages paid through December 31, 2021.

To qualify for the 2021 ERC, employers had to show that their business had been partially or fully suspended under governmental order. Businesses could also qualify if they had a significant decline in gross receipts. For companies that received the credit, the early end date reduces the maximum credit available from as much as $28,000 per eligible employee to $21,000 for 2021. Under the ERC, businesses received about $7,000 per employee per quarter. With the change, wages paid to employees in the fourth quarter of 2021—after September 30—are ineligible for the credit. The one exception is for qualified recovery startup businesses.

The unexpectedly early termination means employers must coordinate with their payroll vendors if they were adjusting their tax liability for 4Q 2021 in anticipation of the credit. For other employers, they can still apply for the ERC for all prior eligible quarters. Employers have three years from the original due date of the Form 941s to amend the previously filed payroll forms to claim the ERC. Despite losing the ERC, affected businesses could see welcome financial news in the new year. The 2022 budget reconciliation bill could offer enhanced tax provisions, including extensions and expansions for the child tax credit, SALT deduction caps, corporate tax change, and more.

Other tax provisions included in IIJA include the extension of various highway-related taxes and the extension and modification of certain superfund excise taxes. It also allows private activity bonds for qualified broadband projects and carbon dioxide capture facilities.

As COVID-related government funding begins to wane, managing your business’s tax liability is more important than ever before. Careful planning with a trusted advisor can make all the difference for your organization in the coming year. If you have questions about maximizing your ERC and preparing for its end, contact your Aldrich Advisor.