When Does the Employee Retention Credit Expire?

The employee retention tax credit has provided a valuable lifeline to struggling employers during COVID-19. This refundable tax credit makes it more feasible for companies to retain employees through pandemic challenges. But this relief measure was designed to be temporary, which begs the question – when does it expire? Read on for a full overview of this credit’s lifespan and what it means for eligibility.

Overview of the Employee Retention Credit

First, let’s review some key facts on the credit:

CARES Act Creation

This tax credit was established by the CARES Act in March 2020 to incentivize employer retention of staff during COVID-related shutdowns.

Subsequent Legislation Expanding the Credit

Given its benefits, Congress voted to extend and expand the credit twice through follow-up COVID relief legislation.

This extended the life of this valuable program and increased the potential credit amounts available.

Initial 2020 Expiration Date

While the credit was retroactively available back to wages paid after March 12, 2020, it was set to initially expire rather quickly:

Credit Retroactively Available Back to March 2020

The credit applied retroactively to eligible wages paid starting March 13, 2020.

December 31, 2020, Original Expiration

However, the CARES Act established an end date of December 31, 2020, making it a limited 2020-only relief measure.

At the time, employers could only claim the credit for wages through the 2020 calendar year.

First Extension Through June 2021

As 2020 drew to a close, the credit received its first lifeline – an extension into 2021:

Taxpayer Certainty and Disaster Tax Relief Act

This Act, passed in December 2020, extended the credit by 6 months into 2021.

Extended Credit Through Q2 2021

Specifically, it pushed the expiration from December 31, 2020, to June 30, 2021.

This enabled employers to claim the credit for the first two quarters of 2021 as well.

Most Recent Extension Through September 2021

Just as the credit was set to expire again in mid-2021, another extension provided additional runway:

American Rescue Plan Act

In March 2021, the American Rescue Plan Act became law. One provision of this COVID relief bill pushed the credit’s expiration date back once more.

Expiration Pushed to End of Q3 2021

This Act extended the credit through the end of the third calendar quarter – September 30, 2021.

With this most recent extension, the credit will be available for a total of 21 months until September 2021.

Claiming the Credit for Qualified Wages

During the active lifespan of the credit, employers can claim it based on qualified wages paid to employees:

Quarterly Claiming on IRS Form 941

Eligible employers can claim the credit on IRS Form 941 payroll tax returns for each quarter in which qualified wages were paid to staff.

Requesting Advance Credits

Employers can also file Form 7200 to receive an advance payment of the credit amounts prior to filing the quarterly return.

This provides quick access to the cash flow benefits.

Steps to Take Before the Credit Expires

With the September 30, 2021 expiration date approaching, make sure to take the following steps beforehand:

Calculate the Potential Maximum Credit

  • Review qualified wages paid in 2021
  • Determine maximum allowable credit amounts

Review Eligibility Requirements

  • Confirm your company meets the criteria

Gather Needed Documentation

  • Substantiate eligible employer status, qualified wages, FTE headcounts, etc.

This preparation ensures you claim the full credit you are entitled to before it’s too late.

What Happens After Expiration?

Once the credit expires after September 2021, what can employers expect?

September 30, 2021 End Date

As of October 1, 2021, the credit will no longer be available for wages paid. Qualified wages through September 30th can still be claimed.

Transition Rules and Phaseouts

Congress could provide additional transition relief or phaseouts, but there is no guarantee.

Absent further action, the credit will permanently expire at that point.

Alternative Options After Expiration

While this COVID tax relief program sunsets, there may be alternative options employers can consider:

Research New COVID Relief Programs

Congress is negotiating additional pandemic legislation in 2021 which could contain other targeted business tax provisions.

Consult with Tax Advisors

Financial advisors can explore other tax credits or structure payroll optimally. With planning, payroll taxes can still be managed even without this credit.

The credit’s expiration makes proactive planning critical going forward.

Conclusion

The employee retention tax credit has provided substantial relief to employers but is unfortunately not permanent. Ensure you make the most of this credit before it expires on September 30, 2021. Consult tax professionals to assess your specific situation and maximize benefits ahead of the expiration deadline. And stay tuned for any possible transition guidance or information on other future COVID business tax relief. With some strategic planning, your company can still manage payroll costs even without this temporary credit.

FAQs

Q: Can the credit be extended again?

A: Yes, Congress could theoretically extend it again, but currently the end date is set as September 30th, 2021.

Q: When can I claim credits on the Q3 2021 wages?

A: The Q3 credits would be claimed on Form 941 due by the filing deadline for Q3 payroll tax returns.

Q: What are the deadlines for claiming previous quarters’ credits?

A: Previous quarter credits must have been claimed on Form 941 by the standard filing due dates for those quarters.

Q: Will there be a warning before the credit expires?

A: There is already advance notice of the September 30, 2021 expiration date. But there may not be much additional warning or transition time.

Q: Are wages paid after September 2021 retroactively eligible if the credit gets renewed in the future?

A: Potentially, but there is no guarantee of retroactive eligibility as the credit timelines can change with each legislative update.

Here are two relevant links to studies and commentary related to the article When Does the Employee Retention Credit Expire?:

CRS Report on COVID Tax Relief Expiration Dates

This Congressional Research Service report provides details on the expiration timelines for COVID tax provisions like the employee retention credit. It summarizes the legislative history.

Analysis of an Extension to the Employee Retention Tax Credit

The Joint Committee on Taxation analyzed the impacts and costs of extending the credit through Q3 2021 as proposed in the American Rescue Plan Act. Their findings informed the final legislation.

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