On November 15, 2021, President Biden signed the long-awaited Infrastructure Investment and Jobs Act (the IIJA or the Act). According to the White House fact sheet, the Act focuses on roads, bridges, railways, broadband access, climate change, and traditionally underserved communities. The Act is anticipated to create an estimated 1.5 million jobs annually for the next ten years.
Like most new legislation, the devil is in the details. Flying under the radar is an important change with immediate impact to employers. Specifically, the Act retroactively eliminates an eligible employer’s ability to claim Employee Retention Credits (ERCs) for eligible wages paid after September 30, 2021.
As a refresher, in March of 2020, the CARES Act created a refundable employment tax credit for eligible employers to encourage employee retention during the COVID-19 pandemic. The credit is available for 70% of the first $10,000 of qualified wages paid per employee (including employer health care costs), or up to $7,000 per employee per quarter. Originally set to expire on December 31, 2021, ERCs were extended through December 31, 2021 by the American Rescue Plan Act. The Act reverses this extension, effectively ending ERCs as of September 30, 2021 and reducing the maximum available per-employee credit in 2021 from $28,000 to $21,000.
This retroactive change will affect employers who may have reduced their Q4 tax deposits in anticipation of receiving these credits. In addition, employers who made budget adjustments including these credits will need to revisit their budgets to remove them. Ultimately, employers will need to repay any taxes retained in anticipation of the credit.
If you are an employer who has taken advantage of ERCs after September 30, you should consult with your tax advisor on the steps necessary to correct this and ensure compliance with the IIJA.