The 70% employee retention credit for wages paid that Congress first enacted under the Coronavirus Aid, Relief, and Economic Security (CARES) Act will come to a premature end. Under the infrastructure bill Congress recently passed, the credit expires three months earlier than scheduled. The early repeal of this credit is retroactive to Oct. 1, 2021, and does not provide for any penalty relief for companies that have been monetizing the credit as wages are paid, as IRS guidance allowed. The bill is scheduled to be signed into law Nov. 15.
The 70% refundable tax credit for wages paid (up to a maximum of $7,000 per employee per quarter) was available to an eligible business (one that employed 500 or fewer full-time employees in 2019) if the business had a greater than 20% reduction in gross receipts for the quarter, compared to the same quarter in 2019. See April 2021 GT Alert for details. Due to the infrastructure bill’s early termination of the credit, however, there will be no credit for wages paid beginning Oct. 1.
Some companies have been continuing to monetize the credit since Oct. 1 as they have paid wages because the IRS allowed businesses to retain payroll taxes withheld from their employees as an advance payment in anticipation of receiving the credit. This essentially allowed companies to “pocket” the withheld taxes as a credit toward the ultimate retention credit claimed on the quarterly Form 941 payroll tax return. As a result of the retroactive repeal of the...
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