On November 15, President Biden signed H.R. 3684, the Infrastructure Investment and Jobs Act, into law. The law ends the employee retention credit (ERC) as of September 30, 2021 (the end of the third quarter) for most employers.
Originally created by the Coronavirus Aid, Relief, and Economic Security (CARES) Act, the ERC was set to expire on December 31, 2020, but was extended and expanded through June 30, 2021, by the Consolidated Appropriations Act, 2021. The American Rescue Plan Act of 2021 (ARPA) further extended the ERC for qualified wages paid between July 1 and December 31, 2021.
IRS Guidance Needed
Because the provision ending the ERC early is effective retroactively, guidance is needed from the IRS to explain how the changes affect employers that reduced their employment tax deposits in anticipation of the tax credit or requested an advance of the ERC by filing Form 7200, Advance Payment of Employer Credits Due to COVID-19, during the fourth quarter.
Credit Still Available for Recovery Startup Businesses
The ARPA also expanded the ERC to businesses started after February 15, 2020, if they have annual receipts of less than $1 million. These businesses may be eligible for the credit even if they were not shut down due to a COVID-19 lockdown order or did not experience a significant reduction in receipts. The credit for these startup businesses is limited to $50,000 per quarter.
Under the new law, recovery startup businesses can still claim the ERC for qualified wages paid before January 1, 2022.
To learn more about federal and state laws, regulations, and information to keep your company's payroll operations in compliance, check out Payroll Source Plus!
Jyme Mariani, Esq., is Managing Editor of Payroll Currently and Senior Manager of Payroll Information Resources for the APA.