Congressional lawmakers are looking for ways to revive a bipartisan tax credit for retaining employees that prematurely ended last year without overwhelming the IRS' limited resources needed to administer the incentive, a senior Democratic tax staff member said Friday.

A lot of Senate Democrats have "raw feelings" that Congress cut off the employee retention tax credit, or ERTC, three months early in September to raise revenue for a new infrastructure repair law, said Chris Arneson, a senior tax policy advisor for Senate Finance Committee Democrats. He spoke at a conference sponsored by the TEGE Exempt Organizations Council, held online and in person.

Some lawmakers have floated the idea of just reinstating the credit for the last quarter of 2021, but that would put a lot of pressure on the Internal Revenue Service to process amended returns with additional ERTC claims, Arneson said during the conference on tax-exempt organizations.

"The IRS has lots of challenges at the moment, not all of their own making. Certainly IRS budget cuts haven't been helpful," he said, adding that the agency has responded to the coronavirus pandemic with a limited staff.

If Congress chooses to extend the ERTC, lawmakers will likely have to decide whether to make the aid prospective rather than retroactive to September 2021 or if they want to create a new grant program, Arneson said.

"There's no easy solution to this," he said.

One tax proposal from Rep. Carol Miller, R-W.Va., and a companion bill from Sen. Maggie Hassan, D-N.H., would reinstate the credit for the fourth quarter of 2021. The Infrastructure Investment and Jobs Act ended the credit three months early, excluding recovery startup businesses, which was expected to raise $8.2 billion in revenue for the infrastructure law. Before that change, the credit would have covered wages paid through the end of 2021.

Both bills have bipartisan support, with Miller's bill having 95 co-sponsors, including 40 Democrats. However, despite the support, the prospects for attaching the proposal to a larger legislative vehicle before November's midterm elections are unclear.

For nonprofits that claimed the ERTC, which was in effect from March 2020 through September 2021, the credit offered a means to keep workers on payroll and even raise their wages, according to nonprofit advocates seeking a renewal of the incentive. Organizations that were counting on the credit for the fourth quarter of 2021 in their budgeting are having to adjust, and services and employment could suffer as a result, the advocates said.

Karin Hope, a GOP tax counsel at the House Ways and Means Committee, said some Republican lawmakers feel that Congress did not give adequate notice to taxpayers that were counting on the credit lasting until the end of 2021.

"I'm not sure anyone wants ERTC to go on forever because it was considered an emergency measure, but many of our members did have a concern about cutting it off," Hope said.

Published on June 21, 2022