Early Termination of the Employee Retention Credit: What You Need to Know

With the passage of the Infrastructure Investment and Jobs Act (IIJA), or the bipartisan infrastructure bill, most employers are no longer eligible for the Employee Retention Credit (ERC). The IIJA has limited the ERC to employers categorized as a recovery startup business. Thus, all wages paid after September 30, 2021 by an employer not classified as a startup business are no longer eligible for the ERC. Here’s what you need to know about your eligibility and what your next steps should be.

What is a Recovery Startup Business?

To be considered as a recovery startup business, a business must meet the following criteria:

  • Operations started on or after February 15, 2020.
  • Average annual gross receipts do not exceed one million dollars.

All businesses that do not meet the above criteria cannot apply the ERC to any wages paid in the fourth quarter. However, all businesses meeting the above criteria may still be eligible to receive the ERC.

What if I No Longer Qualify and Already Reduced My Employment Tax Deposits?

In expectation of claiming the ERC for the fourth quarter of 2021, some now ineligible employers may have already reduced their employment tax deposits. All these businesses should continue to monitor IRS issued guidance on the matter. Some businesses may still be able to act on these amounts.

Form 7200: Information and Tips

Eligible employers file Form 7200 to request advance payment of the ERC. Some businesses have already filed Form 7200, which is used to request an advance payment of the ERC for the fourth quarter. In cases where the IRS has not yet processed Form 7200, they will use the taxpayer’s indication of whether it is a recovery startup business to accept or reject the ERC claim. Some now ineligible employers may have already made an advance payment of the ERC. These employers are still required to include the advanced payment on the relevant line on its employment tax return. In some instances, this may mean the employer will have a balance due when the tax return is filed.

Filing Form 7200 in light of the IIJA can be complex and confusing. Below are some more tips to help navigate this process:

  • The last day to file Form 7200 to request an advanced payment is either the date you filed your employment tax return or January 31, 2022, whichever is earlier.
  • The IRS will no longer accept Form 7200 submissions after January 31, 2022.
  • Submit 7200 on its own. Other information will not be considered during processing and may slow down the process.
  • If you have already requested or received funds, report them on Form 7200.
  • Do not submit a duplicate Form 7200.

Contact a KerberRose Trusted Advisor for questions on tax-related provisions within the IIJA.

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