For many, the COVID-19 pandemic wreaked havoc on our daily lives. In the professional space, it created quite a challenge for business owners as they navigated supply chain issues and difficulties retaining workers at a time when business income was suppressed. On the issue of employee retention, the federal government sought to encourage employers to keep employees on the payroll during the COVID-19 crisis and introduced an employee retention tax credit. However, multiple changes have been made to the program, creating uncertainty around the employee retention credit for Indiana businesses.
Overview of the Origins of the Employee Retention Credit for Indiana Employers
The employee retention credit (ERC), § 2301 of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), was created to make it easier for businesses that kept their employees on the payroll through the challenges presented by the pandemic. The ERC was crafted as a refundable tax credit of 50 percent of up to $10,000 in wages paid by an eligible employer whose business was financially impacted by COVID-19.
As designed, the ERC was a fully refundable payroll tax credit, which meant that, although it was claimed against payroll taxes, the amount of the ERC could exceed the actual payroll taxes due. Eligible employers could pay a reduced deposit on their federal employment tax while awaiting the credit. Additionally, eligible employers could request an advance of the ERC for any credits that would be due to the employer in excess of the amount already reduced from deposits.
These advance credits and deposits are an important factor to consider when examining the impact of ERC changes on Indiana employers. An Indiana tax attorney or other experienced business tax professional can help you understand the impacts of changes to the employer retention credit for Indiana employers and how they apply to your specific tax situation.
Employee Retention Tax Credit Extended and Modified: The Taxpayer Certainty and Disaster Tax Relief Act
The Taxpayer Certainty and Disaster Tax Relief Act, enacted in December 2020, changed several significant elements of the employee retention tax credits that were included in the CARES Act, including extending the ERC through June 30, 2021. The December 2020 law also retroactively allowed employers who received Paycheck Protection Program (PPP) loans to also qualify for the ERC under certain circumstances and adjusted the percentage of qualified wages that could be claimed to 70 percent (instead of 50 percent), up to $10,000.
Employee Retention Tax Credit Extended Again: The American Rescue Plan Act
As the COVID-19 pandemic dragged on, so did the need for relief. On March 11, 2021, the American Rescue Plan Act was signed into law. This act extended the ERC once again, this time from July 1, 2021, through December 31, 2021.
Repeal of the Employee Retention Credit: The Infrastructure Investment and Jobs Act
As is often the case with federal tax policies, as soon as one is implemented into law and becomes understood, the laws change once again. In November of 2021, the Infrastructure Investment and Jobs Act effectively revoked the employee retention credit after September 30, 2021, for wages paid by businesses that are not considered a recovery startup business. The retroactive nature of the repeal created issues for many employers expecting credits that would have been due under the law at that time in the fourth quarter of the year, specifically if those employers had adjusted accordingly and withheld their payroll tax deposits.
On December 6, 2021, the IRS released Notice 2021-65, concerning the repeal of the ERC. The fourth quarter of 2021 was impacted in that only those qualified as a recovery startup business remained eligible for the ERC. A recovery startup business is one that, among other eligibility requirements, did not start business until February 15, 2020, or later. More details about the repeal can be found on the IRS website discussing guidance regarding the retroactive termination of the employee retention credit.
Tax Attorney Julie Camden Can Help You Navigate the Impact of ERC Changes on Indiana Employers
The employee retention credit is new and already consistently evolving. To figure out if you can claim the credit, you need help from a tax professional with experience in this area. Julie Camden at Camden & Meridew P.C. is an Indiana tax attorney who closely monitors changes in federal and Indiana tax law and procedure and can help you evaluate how the ERC applies to your business. To learn more about the impacts of the employee retention credit for Indiana businesses and how Julie can help you, schedule a consultation by calling 317-770-0000 or by using the firm’s online contact form.