With the signing of the Infrastructure Innovation and Jobs Act by President Biden on November 15th, an additional $500 billion is expected to be invested in “hard” infrastructure projects over the next five years.
One of the tax offsets to help pay for the project was closing the Employee Retention Tax Credit (ERTC) program effective for calendar quarters beginning after September 30, 2021. This closure “cuts off” the 4th quarter of 2021 for qualification but does not prevent taxpayers from still applying for the credit for any eligible quarters prior.
Recovery Start-Up Businesses
The Infrastructure Innovation and Jobs Act did leave open for 4th quarter of 2021 for ERTC qualification for one segment of businesses: recovery start-ups. To qualify as a recovery start-up, the business must have begun operations after February 15, 2020 and had gross receipts under $1 million for 2020 and 2021.
Further, a recovery start-up business does not need to meet one of the two requirements to become a qualified business that other companies must meet which include either a decline in gross receipts or a government shutdown.
The statute of limitations to amend a Form 941 payroll tax return (the form used to request the refundable ERTC) is three years from the date the quarterly Form 941 was originally due. While there is still plenty of time to amend the 2020 and 2021 Form 941s, one key consideration when amending is that the credit is taxable.
What to file when
For calendar year taxpayers who do not plan to extend their 2021 tax return and plan to file prior to the March 15th and April 15th deadlines, filing for the 2021 Employee Retention Tax Credit in advance of the 2021 tax return will prevent an amended return from being filed. Taxpayers must remove wages being deducted on their tax return in the same year that the wages were utilized for the credit.
If a taxpayer recently filed for the Employee Retention Tax Credit for calendar quarters in 2020, the taxpayer should discuss with their tax return preparer about amending their 2020 tax return.
ERTC & PPP interactions
If a taxpayer qualifies for ERTC in 2021 calendar quarters and also received a 2nd PPP Loan, special consideration should be taken to plan around how the wages will be utilized in order to receive the maximum credit possible for ERTC while also ensuring full PPP loan forgiveness.
Rushing to file for PPP second draw loan forgiveness without considering the impacts on the ERTC, could have a significant impact on the credit.
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