ERTC Reinstatement Act Update 2023

The ERTC Reinstatement Act is a provision of the CARES Jobs Act passed in 2020 that provides a tax credit for employers that retain employees during the COVID-19 pandemic. The big question is, will the Employee Retention Credit Reinstatement Be Extended?

Qualifying small employers are first to receive a CARES Act Employment Retention Tax Credit on salary payments between January 13 2019 – December 31 2019. In December 2019 Congress passed the ERTC Restitution Act which is intended as a way of helping companies recover from the impact of the COVID-19 epidemic. ERTC helps employers affected by COVID by helping retain employees to work rather than laying them out and rehiring staff previously dismissed.

Employee Retention Credit Reinstatement Act Congress

This bipartisan legislation surprised the industry. This bill would end employers’ ability to retain employees on eligible salaries paid after 30 September 2021. Fortunately, the federal government has proposed legislation to provide for retention tax credit reinstatement for wages paid. Employee Retention Tax Credits (ERCs) are still in effect!

ERTC Reinstatement Act for Small Business Owners

The Employee Retention Tax Credit Reinstatement Act was introduced in the United States House of Representatives in December 2020. It aims to reinstate the ERTC and make it available to more small businesses. The bill would make the credit available to businesses with less than 500 employees and increase the credit amount to 80% of qualified wages for businesses affected.

CARES Act and Employee Retention Credit Background

Originally, qualified companies may claim the CARES Act Employee Retention Tax Credit (ERTC) for wages. The ERTC was originally set to expire on December 31, 2020, but on November 15, 2021, a $1 trillion bipartisan infrastructure bill would phase out the program beginning in the fourth quarter of that year. To help businesses recover from the effects of the COVID-19 pandemic, legislation to revive the ERTC for the fourth (4th) quarter of 2021 was submitted in Congress in December 2021.

ERTC was created so small business owner with business operations impacted by the pandemic could keep workers instead of laying them off or rehiring those who had been let go. It is considered one of the last remaining sources of aid for organizations still struggling after the pandemic ended. The ERTC Reinstatement Act, supported by more than 70 cosponsors and organizations, was prepared by members of Congress and submitted to the Senate and House for approval.

The Earned Revenue Credit (ERC) is a form of refundable tax credit offered to eligible employers and enterprises under the CARES Act. The Employee Retention Tax Credit provides some welcome tax relief for eligible businesses that suffered significant revenue losses in 2020 and 2021.

The ERTC was set up and fashioned as an incentive for companies of all kinds and scopes to retain workers on the payrolls through economic difficulty and strife. A business must either have had all or part of its operations suspended due to a government order or have seen a substantial drop in quarterly gross receipts, especially compared to the same quarter in 2019, to qualify as an eligible employer in 2020-2021.

The non-refundable portion of the employee retention tax credit will be applied to Medicare taxes rather than Social Security taxes. It’s important to remember that this modification will only affect the overall credit amount for wages that qualify after 2021.

Key Items of Tax Credit Reinstatement Act

Here are a few key items to consider while learning more about Employee Retention Credit:

• The Employee Retention Credit (ERC) is a grant-like tax credit that can return a sizable amount to small business owners, primarily coming from wages paid and health care premiums the business has already paid.
• The Employee Retention Credit is unlike any other incentive program because it does not require repayment by small businesses. The ERC is the money the government owes to businesses, typically given back to them through employer credits.

ERTC Repealed – Why? 

The decision to repeal the ERTC was based on the erroneous assumption that the program was not put to full use. The Government Accountability Office discovered that in 2021, business utilization increased by a factor of three over 2020 levels.

The prospect of a $7,000 refundable payroll tax credit per employee in the fourth quarter was a major incentive for nonprofits and businesses to keep and attract new staff. Employees who lost their jobs due to the retroactive repeal and businesses that experienced unexpected losses also suffered actual hardship.

Who Qualifies for the New Reinstated Employee Retention Credit?

To qualify for ERTC, companies must have had a 20% drop in gross revenues during a specific quarter or in the immediate prior quarter. In some cases, the owner could receive partial suspension of activities because it had been suspended by a government order. For ERTC’s upcoming third and fourth quarters, recovery startup businesses may be eligible, or severe financial distress employers. The net income of businesses reflects that they lost at least 80% in one quarter versus quarter in 2019.

These are just some examples of qualifications. An Employee Retention Tax Credit specialist can investigate deeper and find the maximum a business can be fully eligible for.

Will ERTC be Restored?

Since its inception in the Cares Act of 2020, the ERTC has allowed businesses to claim a quarterly tax credit of up to $7,000 per employee, even if their revenue has decreased by 20%. During the fourth quarter of 2021, this aid was critical for travel companies and other businesses hit by Covid-19 to rehire furloughed workers and get back on their feet.

Nonprofits Urge ERC’s Reactivation

Many charities have revised and resent their original letter to top lawmakers. A request to actively restore the Employee Retention Tax Credit was put forward in the bipartisan Tax Credit Reinstatement Act. This was meant to extend the refundable payroll tax credit to  2022, and modify nonprofit eligibility that extends past the currently-used ‘gross receipts’ test. It also stood for an improved definition of eligible payroll expenses, requesting it to include child care and education subsidies.

This is also good because Nonprofits and religious organizations are eligible under many circustances.

FTCO ERC Final Thoughts for Employee Tax Credit Future

Employers must file forms for ERTC in order for their employer to claim it in a retroactive manner. Form 941-X is due 3 months after the business’s return is updated. We feel that it is very important for small businesses to employ the help of an ERC professional to assist in claiming the Employee Retention Tax Credit. Many businesses offer help to businesses in need, and small business must be cautious in who they choose.

There are many factors to take into consideration to get back the maximum refund available. Making sure the process is done correctly can also help in avoiding a potential audit.

If you have any questions, guidance, or even would like a complimentary pre-qualification check, please contact us using the form below.

We look forward to assisting you any way we can.