The Employee Retention Credit, one of the pandemic relief programs Congress created to help employers keep employees on the payroll, may be ending one quarter ahead of schedule. In the proposed infrastructure bill, the ERC would end Sept. 30 instead of December 31.
For business owners who were counting on the credit, which can be claimed quarterly and is worth up to $7,000 per eligible employee per quarter, ending the credit early could pose a major budgeting challenge for the rest of the year.
We will continue to monitor the progress of the infrastructure legislation and the fate of the ERC, and when Congress comes to a decision, we will be sure to provide an update.
In the meantime, here are three steps businesses might consider taking:
Wait to claim the credit, if you can. Business owners who can afford to wait to claim the credit for the fourth quarter should wait. The credit can be claimed in 2022 or 2023 if you choose not to claim it this year.
Don’t hold back payroll taxes as an advance on the fourth-quarter credit. To give businesses immediate access to the funds in the credit, the IRS allowed businesses to hold back on paying payroll taxes, creating a sort of advance on the credit. Usually, if an employer does not pay payroll taxes by the deadline, the IRS assesses a penalty, but this was waived for those businesses anticipating the ERC. Continuing to not pay payroll taxes as an advance for the fourth quarter credit could be dangerous, as it’s unclear whether the IRS will continue to waive penalties when the program ends.
Maintain clear documentation. To be eligible for the ERC, business owners must document that they suffered business losses as a result of the pandemic, including as a result of government actions such as closures or capacity limits. As vaccine mandates begin to be enforced, it’s possible that business losses that result from such mandates will allow more employers to claim the ERC. This is still uncertain, but maintaining clear documentation of business losses will be essential to claiming the credit when the time comes.
If you have questions about the ERC or other government programs for which your business might qualify, reach out to us at info@sbfcpa.com.