Senate Infrastructure Act prematurely ends a tax break from the Covid period

Samuel Corum | Getty Images News | Getty Images

A newly unveiled Senate infrastructure measure 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 wage tax credit – the employee loyalty scheme – on a portion of the wages paid by the employees up to January 1, 2022.

The $ 1 trillion infrastructure investment and jobs bill would shorten the period. Employers could claim the tax credit on wages paid by October 1, according to the wording of the bipartisan legislation.

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The bill 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 start-up” 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 Loyalty Loan was created by the CARES Act in March 2020 as an incentive for troubled employers to keep employees on their payroll during a period of mass layoffs.

It has been extended a number of times, most recently through the American Rescue Plan, which offered tax breaks 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 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% compared to the same period in 2019 – before the pandemic.

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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