Senate infrastructure bill ends a Covid-era business tax break early

Small Business

Samuel Corum | Getty Images News | Getty Images

A Senate infrastructure measure unveiled Sunday would end a pandemic-era tax break for businesses three months early in order to raise funding.

Certain businesses are currently able to claim a refundable payroll tax credit — the employee retention credit — on a portion of workers’ wages paid up to Jan. 1, 2022.

The $1 trillion Infrastructure Investment and Jobs Act would shorten the time period. Employers would be able to claim the tax credit on wages paid to Oct. 1 this year, according to legislative text.

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The bipartisan bill would allocate money to the nation’s roads, bridges, public transport, broadband, rail, water and airports. The Senate may vote on the measure as soon as this week.

However, the legislation keeps the existing timeline for “recovery startup” businesses. These are firms that started operations after Feb. 15, 2020 and have annual sales less than $1 million.

Employee retention tax credit

The employee retention credit was created by the CARES Act in March last year as an incentive for ailing employers to keep workers on their payrolls during a period of mass layoffs.

It has been extended a few times since then, most recently by the American Rescue Plan, which offered the tax break through 2021.

The refundable tax credit is available to private-sector employers and tax-exempt organizations that lost significant business or had to fully or partially suspend operations during the Covid pandemic due to government restrictions.

Businesses can currently get up to $7,000 per quarter, or $28,000 per employee in 2021. (Businesses can deduct 70% of up to $10,000 in qualified wages paid per employee each quarter, which amounts to $7,000.)

The infrastructure bill, if passed, would shorten this timeframe by one quarter — allowing for a maximum tax break this year of $21,000 per worker.

Employers qualify in 2021 if their gross receipts fell by more than 20% in a quarter relative to the same period in 2019.

That may apply to more businesses than in 2020, when businesses had to suffer a 50% drop in sales to get the tax break. Businesses also qualified for a lesser credit (up to $5,000 per employee per quarter) in 2020.

Businesses can still claim a 2020 credit but must amend their tax returns to do so.

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