A group of former lawmakers from both parties is calling on Congress to undo a provision of the bipartisan infrastructure bill that would end the Employee Retention Credit months before it’s set to expire at the end of the year.
Former Reps. Rick Lazio, R-New York, and Joe Crowley, D-New York, and former Sens. Heidi Heitkamp, D-North Dakota, and Mike Johanns, R-Nebraska, released an open letter last week expressing bipartisan opposition to proposals to retroactively end the Employee Retention Credit before the end of the fourth quarter of 2021, as well as calling for more education for business owners about the ERC. They all now work for
They noted that as COVID-19 and its effects linger, many businesses are still relying on the tax credit to stay afloat. The former representatives and senators argue that at a time when worker shortages are one of the main causes behind supply chain issues, it’s more important than ever to educate small and midsized businesses about the ERC and to ensure they have time to access the tax benefit.
“It is thanks to this expansion and extension of the ERC (as well as recent IRS guidance) that small and medium businesses and their tax advisors are finally learning about and becoming educated about the significant benefits of the ERC,” they wrote. “Just since June, we have seen a week-by-week dramatic increase in the number of small and medium businesses that are applying for the ERC. The additional dollars these small and medium businesses are receiving under the ERC has been extremely meaningful for these businesses to retain employees and hire new employees. Retroactively ending the ERC after the third quarter of 2021 — as proposed in the infrastructure bill negotiated by the Senate with the administration — would deal a blow, particularly to American small and medium-sized businesses, at a time when companies continue to struggle.”
They noted that many businesses remain unaware of the ERC and could use the tax benefit to help in their recovery. Most of the businesses they have worked with at alliantgroup have been confused about their eligibility for the ERC and how it works with other COVID-19 incentives such as the Paycheck Protection Program. It is only with the enactment of legislation this year — extending and expanding the ERC — that businesses and their tax advisors began to understand the big lift provided by the credit.
“For these reasons, we would encourage the Treasury and IRS to consider putting on their website updated current information that educates businesses about the ERC and its benefits and urge Treasury and the IRS to coordinate with the SBA on making sure businesses are informed about this tax credit,” they wrote.
They’ve talked to many employers who have claimed the ERC and been able to keep employees on payroll, reinvest in their businesses and cope with the pandemic. “What we are saying in a very bipartisan way is that we've been talking to business owners and operators of particularly small and medium-sized businesses,” Lazio told Accounting Today. “I think we’re close to 10,000 businesses that we have now helped qualify for the Employee Retention Credit. The most challenging issue is not that they don’t need it. They desperately need this credit to retain employees and to try and hire some people who are on the sidelines of employment. We still haven’t gotten back to where we were pre-pandemic in our overall national workforce. And so these businesses still are facing a number of issues, and over the last couple of months, you’ve seen an increased amount of government directives and orders that make the operation of small and medium-sized businesses that much more difficult.”
He noted that the Delta variant has led to more government directives that have affected businesses. “These businesses are still struggling,” said Lazio. “They’re struggling with supply chain issues. They’re struggling sometimes with mobility issues. They’re struggling with social distancing and, in certain markets — California being one of them, for example — you’ve seen fresh new government mandates that are affecting the operation of business. So what we’re saying in a very bipartisan fashion is this is the wrong time to cut back on the Employee Retention Credit. The pandemic is still very much with us. Government is still very much restricting how business can be conducted, and this has been a lifeline.”
Crowley also sees the need to maintain the credit for now. “It is vitally important that the Employee Retention Credit stays in place to continue to bolster small and midsized businesses as they deal with lingering pandemic-related challenges,” he said. “I’ve spoken with many small-business owners and operators, and have not only witnessed the incredible impact the ERC has made for them, but also have heard their warnings about the detrimental effects eliminating this lifeline would have when they still very much need it. With conflicting messages flying around about which COVID-related government resources are still available and how to qualify for them, it is imperative that business owners know they can still apply for the ERC, and should make all necessary preparations to do so before it sunsets. The elimination of this credit is a bipartisan issue that affects businesses in every state and sector, and I am proud to stand with my Republican colleagues to call for the ERC to be extended.”
The bipartisan infrastructure bill would have ended the tax credit in September as a way to help offset approximately $8 billion of the cost of the $1.2 trillion bill. Even though the Senate has already passed the bill, a group of progressive House Democrats has held up passage as they continue to push for passage of the larger $3.5 trillion reconciliation bill with its various tax, social spending and renewable energy provisions. It may be too late to get Senate Republicans and Democrats to agree on an amended bill, but the provisions related to the ERC would need to work retroactively at this point.
“We’re already in the fourth quarter right now,” said Lazio. “Looking to curtail the Employee Retention Credit when it is really needed and when we’re already in the fourth quarter and businesses are already documenting and making plans for claiming it is just the wrong thing to do.”
He sees the provision as doing little to offset the overall cost of the package. “It's a relatively small pay-for in a $1.2 trillion dollar bill,” said Lazio. “It is a little less than $8 billion. And there’s nobody in Congress that is arguing against the Employee Retention Credit. Apparently, what happened was that the administration’s negotiators suggested this as one of many different ways in which to pay for the infrastructure bill.”
The rules regarding the credit have been changing ever since last year, and that has made it difficult for small businesses and their accountants.
“The issue is that many of these businesses were confused when the law changed the employee retention qualifications, even to the point that the IRS website itself was outdated and gave incorrect information for a long period of time,” said Lazio. “We had many businesses that were told at the outset that if they took a PPP loan, they couldn’t take [the ERC]. Small and medium-sized businesses don’t have in-house tax counsel to advise them every time the law changes. In this case, you had the original ERC in the CARES Act, then you had the December amendments. You had the IRS provide 102 pages of guidance in March, which clarified the qualifications, and then you had the Biden bill, the Rescue Act, that extended it to all four quarters of 2021 and the spring. With all these changes, most small and medium-sized businesses are not equipped to understand all of these changes every two or three or four months, especially when you’ve got mixed signals coming from the federal government as to what the current qualifications are from the IRS. We’re finding that as businesses are being educated on this, the demand for it is spiking.”
