The Infrastructure Investment and Jobs Act, signed into law Nov. 15, 2021, has ended the availability of the Employee Retention Credit (ERC) for the entire fourth quarter of 2021 for most employers. “Recovery startup businesses” – businesses that began operations after Feb. 15, 2020, and for which average annual gross receipts do not exceed $1 million for the three-taxable-year period immediately preceding the calendar quarter for which the credit is determined – can continue to claim ERCs for the fourth quarter (limited to $50,000 for the entire quarter).
What does CohnReznick think?
On account of the Senate’s passage of the bill in early August, throughout the fourth quarter employers have generally been aware that the ERC could be eliminated for the quarter. Consequently, many otherwise ERC-eligible employers chose not to reduce their federal employment tax deposits and/or file Forms 7200 to claim advances of their anticipated ERC amounts for wages and health plan expenses paid during October and the first weeks of November.
Employers that took the more aggressive position and continued to anticipate fourth quarter ERCs will need to work with their payroll providers to rectify any resulting federal employment tax deficiencies. Presumably the IRS will issue guidance soon as to what happens to an employer that took an advance against its Q4 ERC. We would expect that the employer will be required to repay the ERC amount taken without penalty or interest, but we will have to wait and see.
However, we are also hopeful that Congress recognizes the retroactive effect of this change now that the fourth quarter is already one-half completed. If so, perhaps they will revise the effective date to allow credits for wages paid prior to the date of enactment.
Subject matter expertise
JD, LLM, Managing Director - National Tax Services
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