The Infrastructure Investment and Jobs Act (IIJA), which is currently waiting to be signed by President Biden, would retroactively end the Employee Retention Tax Credit (ERTC) as of September 30, 2021.
Originally, the ERTC was enacted as part of the Coronavirus Aid, Relief and Economic Security (CARES) Act, and was scheduled to end on December 31, 2021, allowing eligible employers to claim the refundable ERTC against the employer’s share of Medicare taxes equal to 70% of the qualified wages paid to each employee, up to $10,000 per employee per quarter in the third and fourth quarters of 2021.
Under the IIJA, the ERTC would be retroactively terminated to apply only to wages paid before October 1, 2021 unless the employer is a recovery start up business. To qualify as a recovery start up business, the business must have started operating after February 15, 2020, had average annual gross receipts of less than $1 million. The IIJA removes the original third qualifying condition, which was that a recovery start up business did not meet the original eligibility requirement of having experienced a significant decline in gross receipts or having been subject to a full or partial suspension under government order. This modified definition may mean that some businesses that didn’t qualify as a recovery start up under the original definition may now qualify. Many recovery startup businesses are subject to a maximum total credit of $50,000 per quarter, for a maximum credit of $100,000 for 2021.
If you retained payroll taxes in anticipation of receiving the ERTC on post-September 30th payroll taxes, you should contact your CPA as soon as possible to review your situation. If you have questions about how the retroactive termination of the ERTC will impact your business, leave a comment below or feel free to contact me directly, I’m happy to help.