The Employee Retention Tax Credit has been changed to no longer cover the 4th quarter of 2021
In 2020, Congress created the Employee Retention Tax Credit (ERTC), one of several programs to aid small businesses during the COVID-19 pandemic. As the name suggests, the ERTC is a credit to offset the cost of payroll taxes on employees that small businesses retained through the pandemic.
The ERTC was originally set to expire on January 1, 2022, giving employers the ability to claim it for all four quarters of 2021. Since the ERTC offered savings of $7,000 per employee per quarter in 2021, this meant employers were eligible to up to $28,000 per employee in tax credits this year.
However, on November 15, 2021, the federal Infrastructure Investment and Jobs Act (IIJA) was signed into law. The physical infrastructure law includes a provision moving up the expiration date of the ERTC from January 1, 2022, to October 1, 2021, to offset the infrastructure spending. In other words, the IIJA terminated the ERTC before the 4th quarter of 2021.
The ERTC now only applies to three quarters instead of four this year, meaning the maximum available ERTC per employee in 2021 is now $21,000 instead of $28,000.
The only exception to this change applies to recovery startup businesses, who have several ERTC provisions that are unique to them. Recovery startup businesses are still eligible to claim the ERTC for Q4 of 2021.
In addition, a qualifying employer can still claim a refund for overreported taxes for up to 3 years after initially filing the tax reports.
NFIB’s Advocacy to Protect Small Businesses
Before the IIJA passed into law, NFIB led a coalition with six other small business associations in sending a letter to congressional leaders, urging them not to curtail the ERTC.
If the early termination of the ERTC is harmful to your business, let your Members of Congress know. Please tell your Representative and Senators to make this crucial credit available to qualifying businesses through the end of the year – as originally planned.
For more information on the changes to the ERTC, including how an employer becomes eligible, how to claim the Credit, or what qualifies as a recovery startup business, you can read our guide here. You can also watch this week’s NFIB webinar with guest speaker Joshua Jenson, CPA.