The US Senate recently passed President Biden’s $1.2 trillion infrastructure bill, which funds plans to rebuild the nation’s transportation systems, roads, and broadband internet.

What is the Infrastructure Bill?

The bill features $550 billion in new federal spending over five years. It would allow for the major overhaul of roads, bridges, and passenger and freight rail. According to the White House, it would be the largest federal investment in public transit in history.

The bill also includes upgrades to the electric grid, expansion of broadband internet access, and building of a national network of charging infrastructure for electric vehicles. Among other priorities, the bill covers spending toward water infrastructure updates.

Before the bill can head to President Biden’s desk, it must be approved by the House.

To pay for the proposed legislation, lawmakers leaned heavily on repurposing unused COVID-19 relief funds. The bill lists savings from rescinding unobligated appropriations for certain programs, including the Paycheck Protection Program.

One of the lesser-known items of the package could possibly move up the termination date for the Employee Retention Tax Credit from the end of 2021 to September 30. If the bill passes, which seems unlikely, the ERTC would end early, saving the federal government more than $8 billion.

However, recovery startup businesses — companies that began a new trade or business after Feb. 15, 2020 with average annual gross receipts of $1 million or less — would remain eligible for the credit through the end of 2021.

Learn about ERTC

What is the ERTC (Employee Retention Tax Credit)?

As part of the CARES Act, the Employee Retention Tax Credit (ERTC) is a refundable tax credit that encourages businesses to keep employees on their payroll. It’s worth up to $5,000 per employee in 2020 and up to $7,000 per employee per quarter in 2021. As well, under the recovery startup provision, small businesses can claim up to $100,000 in Q3/Q4 of 2021.

The refundable tax credit is available to both private employers and non-profit organizations that lost significant business or had to suspend operations, fully or partially, during the COVID-19 pandemic due to government restrictions.

How can employers take advantage before the end of the ERTC?

The ERTC is not like the PPP in that there isn’t a limit to the amount of funding available to businesses impacted by COVID-19. So if the ERTC ends on September 30, employers still have up to three years from the date of filing their employment tax return to make their claim. But the period of eligibility would end on September 30.

Find out if you qualify

To encourage small businesses to invest in new opportunities, Congress expanded the Employee Retention Tax Credit for companies that have recently started a new trade or business and those that will do so before the end of 2021.

Find out if you qualify

Am I eligible?

To be eligible for the Recovery Startup provision of the Employee Retention Tax Credit you must meet these two criteria:

1. Your business must have average annual gross receipts of no more than $1,000,000 over the three year period including 2018, 2019, and 2020; and
2. You began a new trade or business after February 15, 2020.

What is a new trade or business?

By definition, a ‘new trade or business’ can be an entirely new company, or it can be a new trade, product, or service offering within an existing business. At a minimum, a business must:

1. Enter into and carry on a new activity with a good-faith intention to earn a profit; and
2. Engage in the new activity on a regular and continuous basis.

If you started a new activity within an existing business, the next several questions provide additional support for your claim. The more you can answer in the affirmative, the stronger your claim. But no single factor is definitive. We advise that the new business activity should meet at least two of the following.

• Are there separate records or bank accounts for this business activity?
• Is the activity performed in a separate facility or location?
• Is the activity performed by different employees?
• Does the activity have a different name or brand?
• Does the activity have a different website or marketing strategy that supports it?
• Does the activity target different customers?
• Does the activity require you to invest in different assets or hire new employees to perform it?

How much is it worth?

Under the Recovery Startup provision, the credit amount is 70% of qualified wages paid from either the start of the new trade business or July 1, 2021, whichever is later. Qualified wages are capped at $10,000 per employee per quarter. The total credit cannot exceed $50,000 per quarter, with a maximum of $100,000. The credit can be claimed in the third and fourth quarters of 2021.

For example, you could claim the maximum $100,000 tax credit if you have eight employees earning at least $40,000 in annual wages.

With eight employees earning $40,000 in annual wages, you could claim $100,000 in tax credits

What if I get audited?

The IRS has extended the audit window to five years for these claims. Fully documenting your eligibility and credit calculation is an important first line of defense. Watch out for these gotchas:

• Do not ‘double dip’ in different programs (e.g., WOTC, R&D, ERTC) with the same wages.
• The same wages cannot be used both to qualify for forgiveness of a PPP loan and as ERTC wages.
• Differences in ERTC eligibility and calculation from 2020 to 2021.

Key takeaway

Start something new — soon. Launch a new company or a new product/service offering to take advantage of this tax credit. Take action by June 30, 2021 to optimize employee wages that can be applied in Q3 and Q4 of 2021. It is important to safeguard access to these tax credits. Our team at Clarus R+D can verify your eligibility, optimize your credit, and deliver documentation to support your claim.

Find out if you qualify