by Joe Crowley, Former U.S. Congressman; Chairman for Job Creation and Retention, and Rick Lazio, Senior Vice President at alliantgroup and Former U.S. Congressman
November 23, 2021 | published in bloombergtax.com
Congress recently ended the Employee Retention Credit, or ERC, a program put in place as part of Covid relief for businesses. But was it the right time? Rick Lazio, Senior Vice President at alliantgroup, and Joe Crowley, Senior Policy Advisor at Squire Patton Boggs, take a look at the ERC and discuss whether ending it now makes sense.
Congress just passed a historic infrastructure package that can usher America into a new era, but it has come with a cost: the early sunsetting of one of the most valuable Covid-19 relief tools available, the Employee Retention Credit, or ERC.
The bill ended eligibility for the incentive on Oct. 1, 2021, instead of the Jan. 1, 2022, end date, which was established just months ago. It seems congressional Democrats made the decision to raise revenues and offset spending increases as debates continue within the party as to the price tag and allocations included in the infrastructure package.
Although it may have been reasonable to consider sunsetting this provision while the rate of pandemic recovery was accelerating, the Delta variant has furthered our country’s economic quagmire and American small businesses still need our help. More than a year and a half into recovery, the American economy remains nearly 5.3 million jobs short of where the country was in February 2020.
Now, Congress must work to bring back the credit in some form, at a time when the pandemic is still taking its toll. In the meantime, businesses and CPAs should continue to claim it while they still can, or risk leaving money on the table.
Credit History and Details
The ERC was created via the Coronavirus Aid, Relief, and Economic Security Act, sometimes called the CARES Act. It was extended several times, including through the American Rescue Plan of 2021, or ARP, which set the current deadline for American businesses to claim the credit.
The incentive is a refundable tax credit available to employers, allowing business owners the opportunity to claim the credit against certain employment taxes. Through the credit, businesses can claim up to 70% of qualifying wages, which is up to $10,000 per employee, per quarter.
In order to qualify for the credit, which has been touted by the Biden administration as an effective economic recovery tool, employers must establish that their business experienced a full or partial suspension of operations or a significant decline in gross receipts during the eligibility period, which began March 12, 2020, and was intended to run through Jan. 1, 2022, after it was extended to the end of this year by ARP.
Cutting the time frame for American businesses to claim the ERC short significantly reduces the amounts available for employers to claim.
These are monies that businesses across the country can and have used to keep employees on payroll, hire new team members, and reinvest in their business at a critical time. The pandemic has shown little mercy to American businesses. More than 41% of companies reported the need to at least partially suspend operations due to the effects of Covid-19, and some figures have shown more than 23 million jobs lost.
The ability for businesses to reduce their payroll deposit requirement, sometimes to the point of refund, gives business owners the resources and hope they need to bolster their operations and reengage with our struggling economy. Congress should immediately work to revive the incentive or develop a similar one. One possible route would be to bring back the credit strictly for small businesses, those with 500 employees or fewer, which have been hit hardest during the pandemic.
One justification for the new deadline advanced by the administration was that businesses were not claiming the incentive at a high enough rate to justify keeping it for the extra quarter. However, this rationale falls flat in view of the hundreds of thousands of businesses that are teetering on the edge of failure, just as the Delta variant is giving rise to an increase in government shutdown orders.
Businesses need the opportunity to access this sort of tax incentive as the dark clouds wrought by the virus continue to loom into the foreseeable future. Pulling the proverbial rug out from under these firms will only serve to exacerbate our economic challenges.
With the price tag that comes with the infrastructure package, the amounts saved from sunsetting the provision early are far outweighed by the impact on the private sector.
The opportunity for Congress to support the backbone of our economy as we continue to weather this pandemic storm, specifically those small and medium-sized businesses that benefit greatly from this sort of financial support, needs to be top of mind.
This Covid-19 relief tool is an immediate prime to our economy and gives American businesses a fair shake in this unstable economic environment.
About the Authors
Joe Crowley was first elected to Congress in 1998 to represent New York’s 7th District. After redistricting following the 2010 census, in 2012 he was elected as the representative of New York’s 14th District.
He also served as Chair of the House Democratic Caucus, Member of the House Committee on Ways and Means, & Former Vice Chair of the House Democratic Caucus
In Congress, Crowley supported progressive policy goals such as a universal Medicare bill and a $15-per-hour minimum wage. He has served as a Member of the House Ways and Means Committee and became Chairman of the House Democratic Caucus in 2017, making him the fourth highest leader among House Democrats.
Rick Lazio is a former U.S. Representative from New York serving in Congress from 1993-2001. While there, he became a strong advocate for small businesses by sponsoring the successful Small Business Tax Fairness Act. After Congress, Rick moved to the private sector working for JP Morgan Chase as a Managing Director and then Executive Vice President. Rick is committed to his continued interest and support of small to mid-sized businesses by brokering his insight and experience in the public and private sectors to provide strong incentives for job growth. This interest has extended into his civic and philanthropic work in New York with the Committee for Economic Development and the Association for a Better New York.