What Does This Mean for Small Businesses?

As small businesses across the United States emerged from the challenges created by the COVID-19 pandemic, business owners have relied on various relief programs to recover and survive. One such program is the Employee Retention Credit (ERC), a payroll tax credit designed to provide financial assistance to businesses that retained their employees throughout the pandemic.

However, the future of the ERC program might now be in jeopardy as discussions surrounding its potential early sunset unfold in Washington.

Senate Finance Committee Chair Ron Wyden (D-Ore.) and House Ways and Means Chair Jason Smith (R-Mo.) announced a bipartisan bill, The Tax Relief for American Families and Workers Act of 2024, on January 16 which could end the ERC program. While the House voted in favor of the proposed bill on January 31, 2024, it is now up to the Senate whether or not to approve the bill and send it to President Biden’s desk.

Key Takeaways:

• This bipartisan, $80 billion tax deal would terminate the ERC program to fund other tax benefit programs.
• The proposal would end acceptance or processing of any amended returns claiming the Employee Retention Credit (ERC) for all tax years filed after January 31, 2024, instead of April 15, 2025.
• Small businesses may need to closely monitor the progress of the tax deal to understand any changes that could affect their eligibility for and claiming process of the ERC.
• The Tax Relief for American Families and Workers Act of 2024 was approved by the House on January 31, 2024 but still has to pass the Senate.
• Businesses should speak with ERC consultants like Smart ERC to navigate any potential changes and understand their financial implications.

Major Points To Know About The Bill

Under this new tax bill, the early termination of the ERC program would disperse its remaining budget to other government programs. These include: child tax credits; other business tax breaks related to R&D; interest, and accelerated (bonus) depreciation deductions; tax breaks for Taiwanese companies with US operations; disaster victim tax relief; and affordable housing credits. 

The bill also states that the statute of limitations for examination of returns and assessment of taxes will be extended to six years from the later of (1) the date on which the original return for the relevant calendar quarter was filed, (2) the date on which the return is treated as filed under present-law statute of limitations rules, or (3) the date on which the ERC-related credit or refund is made.

What is the Process for Passing a Tax Bill?

There are six primary steps to pass tax legislation:

1. The tax bill is initiated in the House of Representatives and referred to the Ways and Means Committee. When members of this committee reach an agreement about the legislation, they write a proposed law.
2. The bill goes to the full House, where it is debated, possibly amended, and eventually approved.
3. The bill goes to the Senate, where it is reviewed and often rewritten by the Finance Committee. The committee’s version is then presented to the full Senate.
4. After the Senate approves the bill, it is sent to a joint committee of House and Senate members, who try to arrive at a compromise version.
5. The compromise version of the bill is sent to both the House and the Senate for approval.
6. After Congress passes the bill, it goes to the President, who can sign it into law.

On January 31, 2024, the House passed The Tax Relief for American Families and Workers Act of 2024 in a rare bipartisan vote of 357-70. Now, the bill will be passed to the Senate for another vote on the $78 billion aid package. Until further steps are taken by the Senate, the future of the bill, and by extension the ERC, remains uncertain.

Implications for Small Businesses

The proposed tax deal has financial implications for small businesses. The bill intends to partially pay for its provisions by ending claims for the COVID-era Employee Retention Tax Credit, which has been a lifeline for many small businesses struggling to recover after the pandemic. Businesses may have not claimed the credit to date, and the ERC funds businesses have claimed have helped those organizations invest in new equipment, pay off loans, build their cash reserves, launch new products, and so much more. The end of the ERC would foreclose those benefits to anyone who files their claims after January 31, 2024. 

However, some Republicans argue that the ERC has served as a valuable support for small businesses during the pandemic. While the business deduction modifications in the bill may help small businesses, their impact is likely to be negligible by comparison to the sunsetting ERC for small businesses.

Ultimately, the fate of the tax deal remains uncertain in the face of future legislative hurdles. The competing interests of different political factions, coupled with concerns surrounding the bill’s impact on small businesses, make it a complex issue that requires careful deliberation and negotiation.

Working with the ERC Consultants at Smart ERC Can Help Eligible Businesses Claim Available Funds

When it comes to claiming the Employee Retention Credit (ERC), working with people with knowledge about the ERC, such as Smart ERC’s network of former IRS Auditors, can provide numerous advantages for businesses. These consultants possess extensive tax knowledge and understand the complex stimulus program, enabling them to simplify the process of document collation, submission, and compliance. By leveraging their knowledge and acting quickly, businesses can give themselves the best chance to submit their ERC claim before the program expires.

Our network of former IRS Auditors has a deep understanding of the complicated ERC application process and qualifications, allowing them to navigate claims effectively on behalf of businesses. Smart ERC’s former IRS Auditors are aware of the potential pitfalls and requirements, aiming to provide a smooth submission, even in the face of the expedited filing timeline. If businesses act quickly, they can give themselves the best chance to claim the credit they are entitled to while it’s still available.

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F.A.Q

• What is the Employee Retention Credit (ERC)?

The Employee Retention Credit (ERC) is a partially refundable payroll tax credit provided to eligible employers who have experienced a significant decline in revenue or have been subject to a full or partial government-imposed suspension due to the COVID-19 pandemic. It is aimed at incentivizing employers that retained and paid their employees throughout the pandemic.

• How can businesses determine their eligibility for the ERC?

To determine eligibility for the Employee Retention Credit (ERC), businesses must meet certain criteria, including experiencing a decline in gross receipts or being subject to a government-imposed suspension. Additionally, there are size limitations based on the number of employees. It is important to consult with a tax professional or ERC consultant to assess eligibility.

• How can businesses claim the ERC?

Businesses can claim the Employee Retention Credit (ERC) by filing the appropriate payroll tax form with the IRS. The credit amount is calculated based on qualified wages paid to eligible employees. It is recommended to work with ERC consultants or tax professionals who can assist in navigating the complex application process and ensure efficient claim submission.

• What benefits do Smart ERC’s Former IRS Auditors provide to businesses?

ERC consultants, such as former IRS Auditors, offer the benefit of credit-specific knowledge to eligible businesses seeking to claim the Employee Retention Credit. Those benefits include, but aren’t limited to: 

• ERC consultants can help streamline the complicated application process, saving you time that you can invest back into your business.
• Former IRS Auditors, such as the consultants at Smart ERC, have a wealth of knowledge regarding the changing ERC requirements, which means they have your back in an ever-shifting financial landscape.
• ERC consultants can help you claim the ERC that you’re entitled to by helping you define and articulate your business’ qualifying activities, giving you peace of mind.

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“Having served as an IRS Auditor for over 13 years, I have acquired a deep understanding of the tax-related challenges that business owners encounter. My primary goal is to ensure that we deliver accurate and dependable information. We aim to provide you with peace of mind as we expertly guide you through the entire process.”

– Alejandra Astudillo, Former IRS Auditor