Legislation Would Extend Employee Retention Tax Credit

Legislation Would Extend Employee Retention Tax Credit

The Employee Retention Tax Credit (ERTC) was created by the CARES Act and designed to incentivize eligible employers to keep employees on the payroll, rather than lay them off, during the COVID-19 pandemic. The tax credit, along with the Paycheck Protection Program (PPP), were two key mechanisms used to support and stabilize businesses facing financial distress due to the pandemic.

The ERTC was originally set to expire on January 1, 2022, giving employers the ability to claim credit for all four quarters of 2021. Since the ERTC offered savings of $7,000 per employee per quarter in 2021, this meant employers could claim to up to $28,000 per employee in tax credits last year. However, a provision in the bipartisan infrastructure law retroactively cut the period for eligibility short; wages paid after September 30, 2021 were no longer eligible for the tax credit. As a result, many businesses who reduced their fourth quarter employment taxes to the IRS in anticipation of claiming the ERTC now owe the government money.

The Employee Retention Tax Credit Reinstatement Act (S.3625 and H.R.6161) would restore the ERTC eligibility period to cover all of 2021. The companion bills enjoy bipartisan support and were introduced by Senators Maggie Hassan (D-NH) and Tim Scott (R-SC) in the Senate and Representatives Carol Miller (R-WV), Stephanie Murphy (D-FL), Kevin Hern (R-OK), and Terri Sewell (D-AL) in the House.

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