The Employee Retention Credit under the CARES Act encourages businesses to keep employees on their payroll.
The IRS released guidance in mid-November (Notice 2021-65) on the repeal of the employee retention credit (ERC), effective as of September 30, 2021. This change was part of the Infrastructure Investment and Jobs Act (IIJA) which was signed into law on November 15.
The only exception to the repeal is for companies deemed to be recovering startup businesses. As a reminder, to qualify as a recovery startup business you must meet the following criteria:
Began operations on or after February 15, 2020
Maintains average annual gross receipts that do not exceed $1 million
Employs one or more employees
Does not otherwise qualify for the ERC (i.e., business operations were not fully or partially suspended due to government orders, nor did they experience a decline in gross receipts) - NOTE: This requirement has been removed for the period 10/1/21 - 12/31/21
What does this change mean for non-recovery startup businesses? It means you cannot claim ERC in the 4th quarter of 2021. The employee retention credit is still available for periods beginning March 13, 2020, through September 30, 2021.
Small businesses are facing issues on all fronts right now. Labor shortages, demands for higher pay, supply chain issues, and COVID variants just to name a few problems. The employee retention credit could serve as a lifeline as you navigate these difficult circumstances.