Article Posted on 11/10/2021
We wanted to make sure that you know that the Infrastructure Investment and Jobs Act (IIAJ) was passed by Congress last week (we anticipate President Biden will sign soon). This is not the tax bill we have been watching for; that is still in negotiation status in Washington. There are just a couple tax items in this bill. The most impactful tax provision is the Employee Retention Credit(ERTC) is now ending early on September 30th, 2021. Also notable is the provision to add cryptocurrency to IRS tax reporting rules(issuing 1099s); this starts in 2024.
Background on ERTC. Congress originally enacted the ERTC in the Coronavirus Aid, Relief and Economic Security (CARES) Act in March of 2020 to encourage employers to retain employees during the pandemic. Congress later extended and modified the ERTC to apply to wages paid before January 1, 2022.
Eligible employers could claim the refundable ERTC against the employer's share of Medicare (1.45% rate) taxes equal to 70% of the qualified wages paid to each employee (up to a limit of $10,000 of qualified wages per employee per calendar quarter) in 2021.
IIAJ retroactive termination of ERTC. The ERTC was retroactively terminated by the IIAJ to apply only to wages paid before October 1, 2021, unless the employer is a recovery start up business. Thus, for wages paid in the fourth calendar quarter of 2021, (a) the credit applies only to recovery startup businesses and (b) other employers cannot claim the credit.
In connection with the continued availability of the ERTC for recovery startup businesses in the fourth quarter of 2021, the IIAJ also modified the definition of a recovery startup business so that a recovery startup business is one that (i) began operating after February 15, 2020, and (ii) has average annual gross receipts of less than $1 million. The pre-IIAJ prerequisite that a recovery startup business must not have otherwise met the requirements for an eligible employer qualifying for the ERTC, i.e., having experienced a significant decline in gross receipts or having been subject to a full or partial suspension under a government order, no longer applies. Thus, because of the modified definition, an employer that was not a recovery startup business in the third quarter of 2021 might qualify as a recovery startup business in the fourth quarter of 2021 and be able to claim the ERTC for the fourth quarter of 2021.
If you retained payroll taxes in anticipation of receiving the ERTC based on post-September 30, 2021, you will want to review your situation and determine how and when to repay those taxes and address any other compliance issues. We anticipate IRS will issue guidance to assist employers in handling any compliance issues.
If you have additional questions about how the retroactive termination of the ERTC will affect your business, please contact Kopsa Otte or your payroll provider.