January 18, 2022

Volume XII, Number 18

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Infrastructure Investment and Jobs Act Repeals Employee Retention Credits as of September 30, 2021

President Biden’s signing of the Infrastructure Investment and Jobs Act (IIJA) on November 15, 2021, retroactively eliminates an employer’s ability to claim employee retention credits (ERC) for eligible wages paid after September 30, 2021. This means the maximum ERC per employee available to an eligible employer in the tax-year 2021 is $21,000, not $28,000.

Background

The Coronavirus Aid, Relief, and Economic Security Act (CARES) Act provided a refundable employment tax credit for eligible employers paying qualified wages and health plan expenses. This tax credit was available for any employer whose business operations were fully or partially suspended due to orders from a governmental authority or an employer with a significant decline in gross receipts.

Originally, the covered period for the ERC under the CARES Act was March 13, 2020, to December 31, 2020, with a maximum ERC of up to $5,000 per employee. Subsequent legislative acts both extended and expanded the ERC:

The Internal Revenue Service (IRS) previously issued guidance on claiming the ERC in the third and fourth quarters of 2021 (Notice 2021-49) with a caveat that it “will continue to monitor potential legislation related to the employee retention credit that may impact certain rules described in this notice.”

Key Considerations for Employers

The repeal of the ERC by the IIJA as of September 30, 2021, will affect employers that anticipated receipt of the ERC during the fourth quarter of 2021. For example, certain employers likely reduced their tax deposits in anticipation of the ERC. Other employers may have accounted for the ERC in budget projections. Accordingly, if an employer retained payroll taxes in anticipation of receiving the ERC in the fourth quarter of 2021, the employer may want to determine any underpaid tax amounts and identify employment tax compliance issues.

The IRS may issue guidance providing for transition relief from late deposit penalties and/or instructions on how employers are to pay back any credit advances taken in the fourth quarter of 2021. Notably, a “recovery startup business” as defined in the ARPA may continue to claim the ERC for the remainder of fourth quarter.

Eligible employers that have not yet claimed (or incorrectly claimed) any ERC for qualified wages paid between March 13, 2020, through and including September 30, 2021, may still obtain the ERC by amending their quarterly employment tax returns, i.e., Forms 941-X, Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund.

© 2022, Ogletree, Deakins, Nash, Smoak & Stewart, P.C., All Rights Reserved.National Law Review, Volume XI, Number 320
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About this Author

Michael K. Mahoney, Ogletree Deakins, employee benefits attorney
Associate

Mr. Mahoney is a member of the Employee Benefits and Executive Compensation group. He focuses on employment tax matters at both the federal and state levels, the review of labor and tax laws governing qualified plans, and the strategic design of executive compensation plans for a global workforce.

Mike advises employers on a multitude of fringe benefit issues including tax advantageous means of structuring such benefits. He routinely assists clients resolve payroll audits, working with federal and state authorities to reduce assessments on behalf of employers. In...

973-656-1600
Randle Pollard Employee Benefits Lawyer Ogletree
Of Counsel

Randle Pollard is a member of the Employee Benefits and Executive Compensation group. He focuses on employment tax matters at both the federal and state levels, the review of labor and tax laws governing qualified benefit plans, and advises client on the taxation of employee fringe benefits.

Randle has over twenty years of tax law experience as in-house counsel, and from prior positions within government, public accounting, and academia. In addition to his practice with Ogletree Deakins, he is a member of the law faculty at American University,...

202-887-0855
Shivam Bimal Employee Benefits Lawyer Ogletree
Associate

Shiv assists clients with employee benefits and executive compensation matters.  He advises clients on a variety of issues related to qualified and nonqualified plans, including plan design, implementation and ongoing administration, correction procedures, Code Section 409A issues, and IRS filing requirements.

Shiv frequently advises clients on taxability of various fringe benefits, employment tax withholding and reporting obligations, worker misclassification issues, and issues related to business travelers.  He also has experience with employment tax and executive compensation...

212-492-2500
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