The employee retention credit (ERC) was enacted by Congress in March of 2020 to provide relief to employers affected by the COVID-19 pandemic. The original ERC was further extended and modified to allow for a credit through the end of 2021. Many of the nonprofits that have applied for these credits have used them to continue to employ their staff and continue to provide their programmatic activities.
Unfortunately, the Infrastructure Investment and Jobs Act, which was signed into law on November 15, 2021, cut the ERC short by three months to only apply through the third quarter of 2021. Because of this, employers were not able to apply any of the credit amounts to payroll after September 2021. Nonprofits are being hurt by this lack of revenue. Most notably, the credits were originally promised for all of 2021, and many of these organizations were counting on the funds and included them in their budgets. The credit offered a means to keep workers on payroll due to the severe revenue decline. Organizations that were counting on the fourth-quarter ERC are having to drastically adjust their budgets. The immediate impact of Congress failing to extend the ERC is lost jobs and the potential for these organizations to have limited resources to achieve their missions.
A proposal from Rep. Carol Miller (R-WV) and a companion bill from Sen. Maggie Hassan (D-NH), issued in the beginning of 2022, hopes to reinstate the credit to include the fourth quarter of 2021. Even with bipartisan support, the bill has not been passed, leaving an expected $8.2 billion in revenue off the table for nonprofits.
The obvious challenge that comes with extending the ERC is funding the legislation, especially in an election year with a narrowly divided Congress. Lawmakers are currently working on a way to bridge the gap, but there’s been no word on the final tax provisions. A compromise on the ERC will probably mean some sort of limitation on the credit, if there is anything done at all. Senate Finance Committee Chair Ron Wyden (D-Ore.) has expressed doubts on the chance of this proposal being passed, even with the importance of this credit to nonprofits.
Schneider Downs continues to monitor these proposals.
