By: Ashleen Sahni
The Employee Retention Credit (ERC) will no longer be available for the fourth quarter of 2021 for any businesses except Recovery Start Up Businesses (RSB). Qualified businesses can still claim the ERC for the first three quarters of the year 2021. Businesses must amend their payroll taxes accordingly.
The Infrastructure Investment and Jobs Act, signed into law on November 15, 2021, ended the ERC for the fourth quarter of 2021. Previously, the ERC was set to expire on December 31, 2021.
Employee Retention credit History
The Coronavirus Aid, Relief, and Economic Security (CARES) Act created the ERC in March 2020 to combat layoffs related to COVID-19. The program originally offered a refundable payroll tax credit for up to 50% of qualified wages paid from March 13, 2020 through December 31, 2020. The ERC was renewed twice, by the Consolidated Appropriations Act, 2021 and the American Rescue Plan Act through 2021 for up to 70% of qualified wages.
recovery start up businesses
Recovery Start Up Businesses (RSBs) are employers that started after February 15, 2020 and which earn $1 million or less in average annual gross receipts. If a business qualifies as an RSB, it can claim a maximum $50,000 credit per quarter under the ERC. Only RSBs may claim ERC in the fourth quarter of 2021.
claiming the erc for 2021: q1-q3
All qualified employers that experienced a decline in gross receipts by more than 20% in one quarter as compared to the same quarter in 2019 can claim the ERC for quarters one through three in 2021. Eligible employers can claim up to $7,000 per employee per quarter in 2021, and $5,000 per employee for each of the four quarters in 2020. The ERC can be claimed on wages that are not being used toward payroll costs when applying for Paycheck Protection Program loan forgiveness.
how to handle payroll taxes for fourth quarter 2021
Some businesses submitted Form 7200 to request for an advanced ERC payment, or have already reduced their payroll tax deposits assuming they would benefit from ERC in the fourth quarter of 2021. These companies must take immediate action to:
- Fully pay fourth quarter payroll taxes.
- Appropriately report fourth quarter payroll tax liability, and
- Promptly file Form 941.
The IRS will likely offer penalty relief to businesses that reduce payroll tax deposits after September 30, 2021.
the future of the employee retention credit
Due to the current COVID-19 pandemic, an ERC program could return in the future in a more limited form. Some members of Congress are already advocating for the ERC’s return. Lawmakers may release another statement on the program soon.
Chugh CPAs, LLP tax professionals will continue to monitor tax policy and provide updates as they become available. We recommend all businesses contact their trusted accountant to ensure all taxes are properly filed on time.