The Infrastructure Investment and Jobs Act (aka the bipartisan infrastructure bill), which has passed both houses of Congress and which President Biden is expected to sign into law, terminates the employee retention credit (ERC) one quarter sooner than it was otherwise scheduled to sunset. Assuming enactment, the ERC will not be available for the fourth quarter of 2021; the third quarter of 2021 will be the final quarter for which an employer can claim the ERC.

We have published several articles, with this as our most recent, tracking the creation and expansion of the ERC. The ERC started as a fairly limited benefit (largely because a business obtaining a Paycheck Protection Program (PPP) loan could not claim the ERC) that would end at the end of 2020. The Consolidated Appropriations Act, 2021 materially expanded the ERC, making it available to businesses that received a PPP loan and extending the ERC through the second quarter of 2021. This past March, the American Rescue Plan of 2021 further expanded the ERC, codifying the credit into Section 3134 of the Internal Revenue Code of 1986, as amended, and extending the credit through the end of 2021.

But all good things must come to an end, sometimes sooner than planned. Although we are sad to see this early termination, it is hard to fault Congress or the Administration for this policy change. The ERC was created at the beginning of the COVID-19 pandemic when businesses were shedding jobs because of fear of a global economic meltdown. Providing benefits for employers that retained jobs made sense. The world is very different now, more than a year and a half later. Although we remain in the midst of the pandemic, the unemployment rate has dropped to pre-pandemic levels, with many businesses facing material and employee shortages. Expansion of the ERC this past March to include the third and fourth quarters of 2021 looked like a good idea then, but, as a great poet-philosopher once said, “the times they are a chang'n.”

Businesses that budgeted receipt of the ERC in the fourth quarter, however, will no doubt be frustrated by the last-minute repeal of the credit in a quarter that has already started. The only comfort we can offer is that a prior iteration of this bill proposed to terminate the ERC even sooner — after the second quarter of 2021.

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