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Senate Infrastructure Act prematurely ends tax breaks for firms from the Covid period

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Samuel Corum | Getty Images News | Getty Images

A Senate infrastructure measure presented on Sunday would end a pandemic-era tax break for companies three months early in order to raise funds.

Certain companies are currently able to claim a refundable income tax credit – the employee loyalty credit – on a portion of the wages paid by employees through January 1, 2022.

The $ 1 trillion infrastructure investment and jobs bill would shorten the period. According to the wording of the law, employers could claim the tax credit on wages that were paid by October 1 of this year.

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The bipartisan law would provide money for roads, bridges, public transportation, broadband, rail, water and airports in the country. The Senate can vote on the measure this week.

However, the legislation maintains the existing schedule for “recovery startup” companies. These are companies that began operating after February 15, 2020 and have annual sales of less than $ 1 million.

Tax credit for employee retention

The Loan Loan was created by the CARES Act in March last year to encourage troubled employers to keep workers on their payroll during a period of mass layoffs.

It has been extended a number of times since then, most recently through the American Rescue Plan, which offered the tax break through 2021.

The refundable tax credit is available to private employers and tax-exempt organizations that lost significant business or had to cease operations in whole or in part due to government restrictions during the Covid pandemic.

Organizations can currently receive up to $ 7,000 per quarter or $ 28,000 per employee in 2021. (Companies can deduct 70% of up to $ 10,000 in qualified wages paid per employee per quarter, which equates to $ 7,000.)

The Infrastructure Bill, if passed, would cut that timeframe by a quarter – allowing for a maximum tax break of $ 21,000 per worker this year.

Employers will qualify in 2021 if their gross earnings in a quarter are down more than 20% over the same period in 2019.

This could apply to more businesses than it did in 2020, when businesses saw a 50% drop in sales to get the tax break. Companies also qualified for a lesser loan (up to $ 5,000 per employee per quarter) in 2020.

Businesses can still claim a 2020 credit but will need to amend their tax returns to do so.

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