Employee Retention Tax Credit Update: Early Expiration
Key points about the new Employee Retention Tax Credit deadline:
- The Employee Retention Tax Credit program was set to expire on December 31, 2021.
- Under the new Infrastructure Investment and Jobs Act, these credits now expire on September 30, 2021.
- This means that you will not be able to claim Employee Retention Tax Credits for any wages you paid after October 1, 2021.
Employee Retention Tax Credits (ERTC), or Employee Retention Credits (ERC), were first introduced under the CARES Act. These credits reimburse eligible employers for qualifying wage payments, incentivizing them to retain their employees throughout the COVID-19 pandemic. ERTCs refund eligible employers 70% of qualified payroll expenses (up to $10,000 per employee per quarter). This means that you can claim up to $7,000 per employee per quarter.
However, recent COVID-19-related laws have changed some of the details of this program. Most notably, ERTCs will now expire a quarter sooner than expected.
For more information about ERTCs, check out our blog.
ERTCs were set to expire on December 31, 2021. However, the new Infrastructure Investment and Jobs Act sets an earlier expiration date. ERTCs now expire retroactively on September 30, 2021. This means that you will not be able to claim the Employee Retention Tax Credit for any wages you paid after October 1, 2021. This change reduces the maximum credit amount you can claim from $28,000 to $21,000 per employee.
This new expiration date applies to all eligible employers except recovery startup businesses. If you’re an eligible recovery startup business, you can still claim ERTCs for qualifying wage payments until December 31, 2021.
What do I need to do?
Previous legislation allowed you to claim part of your ERTC early by keeping the Federal payroll taxes you withheld from your employees’ wages, instead of depositing those funds with the IRS. The amount of payroll taxes you withheld and kept would then be deducted from the credit amount you received upon filing your quarterly Form 941. However, the new ERTC expiration date creates some new complexities.
If you chose to “monetize” your anticipated credit for the fourth quarter of 2021 in this way, you’re now required to pay back the amount of payroll taxes you kept from any wages you paid after October 1, 2021.
While additional guidance is expected and the IRS may waive certain fees, you could face penalties if:
- You do not deposit the payroll taxes you withheld from wages paid after October 1, 2021 with the IRS
- You’re unable to repay the IRS for the amount of payroll taxes you withheld and retained
As a result, if you are currently claiming ERTCs for every wage payment, you may want to pause until more guidance is released. Likewise, if you planned to receive ERTCs during the fourth quarter of 2021, you may need to reevaluate your budget and make any necessary adjustments.
What else does the Infrastructure Investment and Jobs Act cover?
The early expiration date for Employee Retention Credits is the only part of the new Act that applies directly to employers. As the name suggests, the Infrastructure Investment and Jobs Act mostly covers infrastructure, such as provisions and funding for:
- Roads and bridges
- Railways, airports, and ports
- Public transportation
- Power lines and renewable energy
- Broadband connectivity
- Water systems
- And more
Working with a payroll provider like SentricHR can help you stay compliant with complex, changing legislation. Speak with one of our product experts for more information about our payroll and tax filing services!