Employee Retention Tax Credit Reinstatement Act: What You Need to Know

The Employee Retention Tax Credit Reinstatement Act was introduced to help small businesses rehire and retain their employees during the COVID-19 pandemic. The act provides a tax credit to eligible employers who were negatively impacted by the pandemic and were forced to close their businesses or reduce their operations. The credit is available for wages paid to employees from January 1, 2021, to December 31, 2021.

The act was initially introduced in March 2020 as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The credit was designed to provide financial relief to businesses that were struggling due to the pandemic. However, the credit expired on December 31, 2020, leaving many businesses without the support they needed to retain their employees.

In May 2023, Senators Hassan and Scott proposed a plan to reinstate the Employee Retention Tax Credit, allowing eligible small businesses to receive the credit if they have employees on payroll in the fourth quarter of 2021. The proposed plan aims to help small businesses with their expenses while keeping employees on the payroll, providing much-needed financial relief to businesses that have been impacted by the pandemic.

Background and Purpose of the Act

The Employee Retention Tax Credit (ERTC) was established as a part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act passed in March 2020. The credit was designed to help businesses that were negatively impacted by the COVID-19 pandemic to retain and rehire their employees. It allowed eligible employers to claim a refundable tax credit against the employer’s share of Social Security tax equal to 50% of qualified wages paid to employees from March 13, 2020, through December 31, 2020.

However, the ERTC expired at the end of 2020, leaving many businesses struggling to retain their employees. To address this issue, Congress introduced the Employee Retention Tax Credit Reinstatement Act. The purpose of this legislation is to temporarily reinstate the ERTC for eligible employers who were subject to closure due to the COVID-19 pandemic.

The House of Representatives introduced H.R.6161, and the Senate introduced S.3625, both of which seek to temporarily reinstate the ERTC. The bills aim to provide relief to small businesses that have been hit hard by the pandemic and help them rehire and retain their employees. The legislation would allow eligible employers to claim a refundable tax credit against the employer’s share of Social Security tax equal to 70% of qualified wages paid to employees from January 1, 2021, through June 30, 2022.

The Employee Retention Tax Credit Reinstatement Act has received bipartisan support, with many lawmakers recognizing the importance of providing relief to businesses struggling due to the pandemic. The legislation is seen as a way to help businesses keep their doors open and their employees on the payroll during these challenging times.

Overall, the reinstatement of the ERTC through the Employee Retention Tax Credit Reinstatement Act is expected to provide much-needed relief to businesses affected by the pandemic. The legislation is an important step toward helping businesses recover and rebuild in the wake of the pandemic.

Key Provisions of the Employee Retention Tax Credit Reinstatement Act

The Employee Retention Tax Credit (ERTC) Reinstatement Act was introduced to help small businesses cope with the financial impact of the COVID-19 pandemic. The act provides a temporary refundable tax credit to employers who retained their employees during the pandemic. Here are some key provisions of the act:

Qualified Wages

Qualified wages refer to wages paid by an eligible employer to an eligible employee. The wages must be paid between January 1, 2022, and December 31, 2022. The wages must also be paid during a calendar quarter in which the employer’s business was fully or partially suspended due to a government order or experienced a significant decline in gross receipts.

Refundable Tax Credit

The ERTC is a refundable tax credit that can be claimed by eligible employers. The credit is equal to 70% of the qualified wages paid to each eligible employee, up to a maximum of $10,000 per employee per calendar quarter. The maximum credit per employee is $28,000 for the entire year.

Recovery Startup Business

The act provides a special provision for recovery startup businesses. A recovery startup business is a business that started operations after February 15, 2020, and whose average annual gross receipts for the three taxable years preceding the calendar quarter in which the qualified wages are paid do not exceed $1,000,000.

Advance Payment

The act allows eligible employers to receive an advance payment of the ERTC. The advance payment is equal to 70% of the average quarterly wages paid by the employer in 2019, up to a maximum of $10,000 per employee per calendar quarter. The advance payment is reconciled against the actual credit claimed on the employer’s quarterly tax return.

In conclusion, the ERTC Reinstatement Act provides a temporary refundable tax credit to eligible employers who retained their employees during the pandemic. The act includes provisions for qualified wages, recovery startup businesses, and advance payment of the credit.

Eligibility and Application Process

Eligible Employers

Under the Employee Retention Tax Credit Reinstatement Act, eligible employers can claim the credit through 2021. To be eligible, an employer must have had a full or partial suspension of operations due to a government order related to COVID-19 or experienced a significant decline in gross receipts.

The credit is available to both for-profit and tax-exempt organizations, including small businesses and large corporations. However, employers who received a Paycheck Protection Program (PPP) loan are not eligible for the credit.

Application Process

Eligible employers can claim the credit on their federal employment tax return, Form 941. The credit is refundable, which means that if the amount of the credit exceeds the employer’s payroll tax liability, the excess will be refunded to the employer.

To claim the credit, eligible employers must report the amount of the credit for each quarter on their Form 941 and reduce their required deposits of payroll taxes for that quarter by the amount of the credit. If the credit exceeds the employer’s payroll tax liability for the quarter, the excess will be refunded to the employer.

The IRS has provided guidance for employers claiming the credit for 2020 and the first two quarters of 2021. The guidance includes eligibility rules for PPP borrowers and instructions for claiming the credit on Form 941. Employers can refer to the IRS website for more information on how to claim the credit.

Overall, the Employee Retention Tax Credit Reinstatement Act provides eligible employers with a refundable tax credit to help retain their employees during the COVID-19 pandemic. Employers should consult with their tax advisors to determine if they are eligible for the credit and how to properly claim it on their federal employment tax returns.

Impact on Businesses and Economy

The Employee Retention Tax Credit Reinstatement Act has significant implications for businesses and the economy. The bill was introduced in a bipartisan effort to provide financial support to businesses that were severely impacted by the COVID-19 pandemic. The Act extends the credit through the fourth quarter of 2021, providing a much-needed boost to businesses struggling to stay afloat.

Impact on Small Businesses

Small businesses have been hit particularly hard by the pandemic. Many have been forced to close their doors permanently due to the financial strain caused by the pandemic. The Employee Retention Tax Credit Reinstatement Act provides a lifeline to small businesses by offering them financial support in the form of tax credits. This credit can be used to offset payroll costs, which can be a significant expense for small businesses.

Economic Implications

The Employee Retention Tax Credit Reinstatement Act has significant economic implications. By providing financial support to businesses, the Act helps to prevent layoffs and business closures. This, in turn, helps to stabilize the economy by reducing unemployment and ensuring that businesses can continue to operate.

Notice 2021-23 provides guidance on the Employee Retention Credit, including changes made by the Consolidated Appropriations Act of 2021 and the American Rescue Plan Act of 2021. The notice provides guidance on how to claim the credit and how to calculate the credit amount. It also provides guidance on how to determine if an employer is a severely financially distressed employer.

In conclusion, the Employee Retention Tax Credit Reinstatement Act provides much-needed financial support to businesses that have been severely impacted by the pandemic. By extending the credit through the fourth quarter of 2021, the Act helps to prevent layoffs and business closures, which in turn helps to stabilize the economy.

Legislative Journey

The Employee Retention Tax Credit Reinstatement Act has gone through a legislative journey that started in the House of Representatives, then the Senate, and finally received Presidential approval.

House of Representatives

The Employee Retention Tax Credit Reinstatement Act was introduced in the House of Representatives as H.R.6161 by Representative Stephanie Murphy (D-FL) on March 9, 2022. The bill aimed to temporarily reinstate the employee retention credit for employers subject to closure due to COVID-19. It was co-sponsored by 110 members of Congress, including Representatives Mark Warner (D-VA), Kevin Hern (R-OK), and Terri Sewell (D-AL).

The bill was referred to the Committee on Ways and Means and the Committee on Small Business for further review. After several discussions and amendments, the bill was passed by the House of Representatives on June 28, 2022, with a vote of 271-154.

Senate

The Employee Retention Tax Credit Reinstatement Act was introduced in the Senate as S.3625 by Senator Maggie Hassan (D-NH) on February 10, 2022. The bill aimed to temporarily reinstate the employee retention credit for employers subject to closure due to COVID-19. It was co-sponsored by several members of Congress, including Senators Ben Cardin (D-MD) and Tim Scott (R-SC).

The bill was referred to the Committee on Finance for further review. After several discussions and amendments, the bill was passed by the Senate on August 3, 2022, with a vote of 61-39.

Presidential Approval

The Employee Retention Tax Credit Reinstatement Act was signed into law by President Joe Biden on August 9, 2022. The bill provided for a reinstatement of the employee retention tax credit through 2021. The credit was established to compensate employers whose businesses were negatively impacted by the COVID-19 pandemic for wages paid to their employees.

In conclusion, the Employee Retention Tax Credit Reinstatement Act went through a thorough legislative journey, with support from members of Congress from both parties. The bill was ultimately signed into law by President Biden, providing much-needed relief to employers affected by the COVID-19 pandemic.

Criticism and Controversy

The Employee Retention Tax Credit Reinstatement Act has received both criticism and controversy since its introduction. Here are some of the main points of contention:

Early Termination

One criticism of the Employee Retention Tax Credit Reinstatement Act is that it could be terminated early. Some experts believe that the program could be terminated before its intended end date of December 31, 2021. This could leave businesses that have relied on the program in a difficult position, as they may have already made hiring and retention decisions based on the program.

Amendments

Another criticism of the Employee Retention Tax Credit Reinstatement Act is that it has been amended several times since it was first introduced. Some experts believe that these amendments have made the program more complex and difficult to understand. This could make it more difficult for businesses to take advantage of the program, which could limit its effectiveness.

Coronavirus Aid, Relief, and Economic Security Act

The Employee Retention Tax Credit Reinstatement Act was included in the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which was passed in March 2020. Some experts have criticized the CARES Act as being too broad and not targeted enough to help small businesses. They argue that the Employee Retention Tax Credit Reinstatement Act may not be effective in helping small businesses retain employees.

Lack of Clarity

One of the main criticisms of the Employee Retention Tax Credit Reinstatement Act is that it lacks clarity. Some experts argue that the language of the act is too vague and that it is difficult to determine who is eligible for the credit. This lack of clarity could make it difficult for businesses to take advantage of the program, which could limit its effectiveness.

Overall, the Employee Retention Tax Credit Reinstatement Act has been subject to criticism and controversy since its introduction. While some experts believe that the program could be effective in helping small businesses retain employees, others have raised concerns about its early termination, amendments, lack of clarity, and its inclusion in the broader CARES Act.

Conclusion

The Employee Retention Tax Credit Reinstatement Act has been a crucial piece of legislation for small businesses affected by the COVID-19 pandemic. This act has provided a temporary reinstatement of the employee retention tax credit for employers subject to closure due to COVID-19. The credit was established to compensate employers whose businesses were negatively impacted by the pandemic for wages paid to their employees.

The IRS has provided detailed guidance on how to claim the credit, including eligibility requirements and how to calculate the credit. Employers can claim the credit on their employment tax returns, and those who qualify can also use Form 7200 to request an advance payment of the credit.

The CARES Act passed in March 2020, provided the initial framework for the employee retention tax credit. Congresswoman Carol Miller (R-WV) introduced bipartisan legislation to help small businesses rehire and retain employees they had to let go due to the COVID-19 pandemic.

Overall, the Employee Retention Tax Credit Reinstatement Act has been a valuable tool for small businesses struggling to keep their doors open during these unprecedented times. As the pandemic continues to evolve, it is important for small business owners to stay informed about the latest updates and guidance from the IRS.

Frequently Asked Questions

When was the Employee Retention Credit passed?

The Employee Retention Credit (ERC) was first introduced in March 2020 as part of the CARES Act, which was a federal law designed to provide economic relief to individuals and businesses affected by the COVID-19 pandemic. The credit was later extended through December 31, 2021, by the Taxpayer Certainty and Disaster Tax Relief Act of 2020.

How to claim ERC on a tax return?

To claim the ERC on your tax return, you must file Form 941, the Employer’s Quarterly Federal Tax Return, for the calendar quarter in which you paid qualified wages to eligible employees. You can claim the credit by reporting it on Line 11c of Form 941.

Can I get ERC if my business is now closed?

No, you cannot claim the ERC if your business is now closed. The credit is only available to eligible employers who continue to pay wages to their employees, even if their business has been partially or fully suspended due to a government order related to COVID-19 or if their gross receipts have declined by a certain amount.

Is there still time to claim the employee retention tax credit?

Yes, eligible employers can still claim the ERC for wages paid through December 31, 2021. However, the deadline to claim the credit is the due date of the employer’s federal income tax return, including extensions, for the taxable year in which the qualified wages were paid.

Can I still apply for the Employee Retention Credit in 2023?

No, the ERC is only available for wages paid through December 31, 2021. After that date, the credit is no longer available.

Do employers have to pay back the Employee Retention Credit?

Employers do not have to pay back the ERC if they were eligible to claim the credit and used it to offset their payroll tax liability. However, if an employer received an advance payment of the credit that exceeds the amount of the credit they are eligible to claim, they may have to repay the excess amount.

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