Genevieve Douglas | Bloomberg | July 28, 2021
- Credit worth up to $28,000 per employee this year
- Tax pros flag complexities, unanswered questions in rush to file
Andrew Little credits several government relief programs with helping his California-based solar installation company navigate the pandemic. But Sunternal Construction Inc.’s ability to stay in business hinged on just one: a huge tax break he almost didn’t apply for.
He isn’t alone. Many qualified businesses aren’t claiming the employee retention tax credit, a pandemic relief measure worth up to $28,000 a year per employee kept on the payroll. Without congressional changes, the clock will run out Dec. 31 on their ability to get the money.
“The difficulty here is that here are a lot of new concepts smashed together,” said Christopher Migliaccio, senior manager at PKF O’Connor Davies LLP. “So taken individually, they can be straightforward, but taken together it creates an overall feeling of the program that can be very confusing.”
Congress created the employee retention credit early in the pandemic in the March 2020 relief law (Public Law 116-136) known as the CARES Act.
Many large corporations reported big savings in 2020 thanks to the credit. Spirit Airlines recorded $35.8 million in credits over a nine month period from April 1 to Sept. 30, 2020, while Best Buy reported $81 million in employee retention credits in the first nine months of fiscal 2021.
But smaller businesses initially faced a choice: they could either pursue what was then a smaller tax credit or opt for a forgivable loan under the Paycheck Protection Program. Most chose the latter, according to tax professionals.
But two subsequent pandemic relief laws increased the value of the credit, removed the either/or requirements between it and PPP loans, and extended the program through the end of 2021. The new laws, however, also added to the confusion in determining whether a business qualifies and how to take advantage.