Employee Retention Credit Early Termination
The employee retention credit will be terminated early and broker reporting of cryptoasset transfers will be required as a result of legislation (H.R. 3684) that passed the House of Representatives late Friday and is headed to President Joe Biden’s desk to be signed into law.
Known as the Infrastructure Investment and Jobs Act, the legislation was approved in the House by a 228–206 vote after passing the Senate by a 69–30 vote in August. As part of the Bill, the employee retention credit (with the exception of the recovery startup business credit) is no longer in effect for the fourth quarter of 2021.
Even though the program is ending early, there is still time for eligible businesses to claim the credit, if they haven’t already. The credit can be claimed on amended payroll tax returns as long as the statute of limitations remains open, which is five years from the date of filing.
A few key items to consider:
- The employee retention credit is now in effect for eligible businesses for qualified wages paid from March 13, 2020 – September 30, 2021.
- The maximum eligible credit is now $26,000 ($5,000 in 2020, and $21,000 in 2021) per employee if a business qualified for each eligible period.
- These credits can be claimed on amended payroll tax returns for qualified periods. The statute of limitations to file ERTC claims was previously extended from three years to five years.
- Some taxpayers may have already claimed credits for the fourth quarter of 2021 based on eligibility established from the third quarter either via the advance credit request or reduced withholdings. The IRS has not yet issued guidance on how these credits will be handled.
- The employee retention credit for recovery startup businesses is still in effect for wages paid from July 1, 2021 – December 31, 2021. Employers that qualify are eligible for a maximum of $50,000 of credit per quarter.
While businesses have plenty of time to file amended payroll tax returns, PPP forgiveness applications can have a significant negative impact on available employee retention credits if the interplay between the two incentives is not considered. As most banks have now opened their 2021 PPP forgiveness application process, businesses should ensure they have factored in their ERTC eligibility when filing PPP forgiveness applications.
Other Tax Provisions
There are relatively few tax provisions in the infrastructure legislation, but more extensive changes may be coming in a fiscal year 2022 budget reconciliation bill that remains under consideration by Congress. Those would include extensions of recent changes to the child tax credit and the earned income tax credit; an expanded premium tax credit; relief from the $10,000 state and local tax deduction cap; corporate and international tax changes; and limits on the interest expense deduction.
Cryptoasset reporting
Section 80603 of the legislation will impose new cryptoasset information reporting requirements on brokers. The Sec. 6045(c)(1) definition of “broker” is expanded to include anyone who for consideration effectuates “transfers of digital assets on behalf of another person.” For these purposes, “digital asset” is defined as “any digital representation of value which is recorded on a cryptographically secured distributed ledger or any similar technology.”
The legislation is set to amend Sec. 6045A to require brokers to provide information returns reporting any transfers of digital assets to accounts that are not maintained by a broker.
Disaster relief
The legislation will modify the automatic extension of certain deadlines for taxpayers affected by federally declared disasters in Sec. 7508A, which was enacted in the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019, P.L. 116-94. The definition of a disaster area in Sec. 7508A(d)(3) would be amended to mean “an area in which a major disaster for which the President provides financial assistance under section 408 of the Robert T. Stafford Disaster Relief and Emergency Assistance Act (42 U.S.C. 5174) occurs.” Currently, that paragraph cross-refers to the definition in Sec. 165(i)(5)(B).
Additional Items
The legislation includes other tax provisions, including extension of various highway-related taxes, and extension and modification of certain superfund excise taxes. It also would allow private activity bonds for qualified broadband projects and carbon dioxide capture facilities.
Questions?
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