The Employee Retention Credit (“ERC”) is providing a meaningful (and immediate) tax benefit to tens of thousands of small and medium-sized businesses (as well as tax-exempt entities) across the country as business owners seek to keep their doors open and make new hires in the face of the pandemic. As business owners and charity leaders learn about ERC and avoid common misunderstandings about this tax benefit – it is helping businesses bring (and retain) millions of workers back onto payroll.
Senate Stops the Music – Ends ERC at Third Quarter
However, all this good news is tempered by the fact that the Senate in the bipartisan infrastructure bill decided (for cost-savings purposes) to end the ERC early. ERC was originally set to last to the end of the calendar year – but the Senate, in its proposed infrastructure bill drafted in July decided, to terminate the ERC after three quarters (ending in the 3rd quarter – September 30, 2021) – for a savings of $8 billion dollars.
The decision by the Senate to end the ERC was perhaps understandable at the time given that in early July the horizons looked bright that COVID-19 was mostly in the rearview mirror. Enter the Delta variant. As we all know, we are now back in it with the pandemic – with dozens of new government orders coming out (in addition to those that have remained in place) that are impacting business and tax-exempt organizations. From capacity restrictions to social distancing requirements – and now even vaccine requirements, restrictions are having a clear impact on these businesses. More government orders are on the way thanks to this new variant – all placing a greater burden on businesses and charities.
Why the New Government Orders In Response to Delta Matter for ERC
Why do these government orders matter for ERC? A reminder that thanks to Congress’ good work (and taxpayer-friendly guidance by the IRS) there are two different ways to qualify for the ERC. First, is that, for 2021, a business/charity sees a 20% or greater drop in receipts (on a quarterly basis) (also known as the “receipts test”). The second way to qualify comes when a business/charity has been more than nominally impacted in its operations by a government (federal, state, local, regulatory) order (the “order test”).
At alliantgroup, we are finding that over half of the companies/charities that are eligible for ERC are qualifying due to the order test – the business/charity is subject to a government order(s) that is having a more than nominal impact on business operations (including the business’ supply chain).
Reinstate ERC Fourth Quarter – Infrastructure or Reconciliation
In the face of the Delta variant and its impact on businesses and charities (in the form of government orders) – it is important that Congress revisit the Senate decision to end ERC after the third quarter. My concern is that the writing on the wall is that the House is looking to just bless the Senate infrastructure bill and send it to the President for signature – thus putting in place ending the ERC after three quarters. I recognize that it may be difficult to stop the infrastructure train – that being so the Congress should look at reinstating the ERC for the fourth quarter in the reconciliation bill that the House will being considering next week.
Now that Congress is eyes open as to the full impact of the Delta variant – it is vital that Congress not prematurely end the ERC – an effective tax benefit that I’ve seen first-hand is providing critical support for employers struggling to keep employees on payroll and hire new employees. For businesses and charities that care about ERC and know the benefit it has provided — now is the time to contact Members of Congress. For Congress, as the song says “Stop And Think It Over.”