Anthony Mangiarelli serves as partner and director of the enterprise solutions group for Kahn, Litwin, Renza & Co. Ltd. He is a certified public accountant with more than 18 years of experience. He recently spoke with PBN about the implications of the early end to the Employee Retention Credit.
PBN: What is the Employee Retention Credit and when is it set to end?
MANGIARELLI: The Employee Retention Credit is a refundable tax credit that employers – generally who either have had their business operations partially or completely shut down due to a qualified government order or have suffered a decline in gross receipts – are eligible to claim.
First introduced as part of the CARES [Coronavirus, Aid, Relief and Economic Security] Act, an eligible employer for 2020 could receive a tax credit equal to 50% of the first $10,000 of eligible wages paid to an employee (maximum credit of $5,000 per employee for 2020). The credit was modified through subsequent legislative acts for 2021 such that an eligible employer could receive a tax credit of 70% of the first $10,000 of wages paid to an employee, per quarter (maximum credit of $7,000 per employee per quarter).
One item of note, employers cannot claim the ERC on wages that were used to obtain forgiveness on their Paycheck Protection Program loans and certain other government tax credit programs.
The credit has been eliminated as part of the Infrastructure Investment and Jobs Act signed on Nov. 15, 2021, and most eligible employers are no longer allowed to claim the credit on wages paid after Sept. 30, 2021.
PBN: What do local businesses that were planning to apply for the credit but haven’t yet done so need to know?
MANGIARELLI: It is important for local businesses to work with their advisers to examine their eligibility for the credit for all available periods. A business may be eligible under certain exceptions and alternative methods available that are not generally known.
We recently worked with a business that did not believe they were eligible for the ERC and after examining all facts, circumstances and facets of the laws, they were able to claim credits of approximately $500,000 through an alternative method. Remember, if eligible for the ERC, the credit can still be retroactively claimed for the first three quarters of 2021 (up to $21,000 ERC per employee) and for 2020 (up to $5,000 ERC per employee) by filing amended quarterly payroll tax forms.
PBN: For those who already applied and were planning to include credits for Q4 of 2021, what kind of financial impact might the early end have for them and their finances?
MANGIARELLI: The most material impact is that employers who anticipated being eligible to claim this credit for the fourth quarter of 2021 will now have to scramble to adjust their budgets and forecasts for 2022. This could be a major impact, as employers may have been counting on this additional cash flow from the fourth quarter 2021 ERC to sustain operations into 2022.
PBN: How does the change in ending date affect accountants in general in terms of needing to help clients recalculate credit savings or apply for the credit earlier than anticipated?
MANGIARELLI: Employers were eligible to reduce their current payroll tax filings if they were eligible or anticipated to be eligible for the ERC. Many employers already executed on this plan for the first several payrolls for the fourth quarter of 2021 and with the credit being ended early, the situation we see developing is that we must work with employers to identify the potential fourth quarter 2021 advanced credits received that must be returned.
PBN: How big of an impact statewide (or within KLR’s clients) has this credit had for area employers? Do you think the early deadline will create a last-minute rush for applications, or have most businesses that were going to apply already done so?
MANGIARELLI: The ERC has been vital in helping R.I. employers across all industries restore operations and employment to pre-pandemic levels.
Unfortunately, by ending the credit early, the only thing certain is that employers still struggling with the effects of the pandemic are the ones impacted. It’s hard to tell the overall impact statewide, but pandemic-stricken R.I. businesses may have been relying on this credit to restore or grow their local operations or even pay the tax owed to R.I. on their forgiven PPP loans.
Hopefully, these R.I. businesses that would have been eligible for the fourth-quarter ERC are able to organically realize a positive increase in business activity that allows them to sustain and grow operations for many years to come.
Nancy Lavin is a staff writer for PBN. Contact her at Lavin@pbn.com.
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