On Friday, November 5, 2021, the House passed the $1.2 trillion Infrastructure Investment and Jobs Act, which was passed by the Senate in August. Once President Joe Biden signs the Act into law, it will repeal the Employee Retention Credit for the fourth quarter of 2021.

The Employee Retention Credit (ERC) was created in March 2020 to encourage businesses to retain employees and was set to expire on January 1, 2022 through the American Rescue Plan Act. However, the infrastructure bill retroactively expires the credit for the final quarter of 2021. For eligible employers, the ERC will remain eligible for wages paid prior to Oct. 1, 2021 except for those paid by a Recovery Startup Business (defined below) which remains prior to January 1, 2022.  This reduces the maximum credit available to eligible employers from $28,000 to $21,000.

Recovery Startup Businesses that remain eligible for the ERC through December 31, 2021 must meet several requirements:

• Began operations on or after February 15, 2020;
• Maintains average annual gross receipts not exceeding $1 million;
• Employs one or more employees (other than 50% owners); and
• Does not otherwise qualify for the Employee Retention Credit (ex: a business experiences a qualifying decline in gross receipts or a full or partial shutdown due to government orders)

Employers should note this change only applies to the period for qualified wages and not the timeline to claim the ERC which remains the length of the statute of limitations.

Previous articles on the Employee Retention Credit:

IRS Guidance on the Relationship Between PPP Loan Forgiveness and the Employee Retention Credit
American Rescue Plan Extends the Employee Retention Credit
New Stimulus Plan: Employee Retention Credit Changes and PPP Loans
CARES Act: Employee Retention Credit and Employer Social Security Tax Deferral

Our expert team of state and local tax professionals at Geffen Mesher is ready and prepared to help navigate this credit for your business and can be reached at SALT@gmco.com.