COVID-19 Tax Updates

The Employee Retention Tax Credit (ERTC) is one of the remaining federal tax incentives left over from the pandemic era. Although the program is no longer in effect, taxpayers can continue to file retroactive claims. This is certainly good news for eligible businesses that previously did not claim the savings. At the same time, it has also opened the door to unscrupulous ERTC mills and others falsely promising huge tax savings to unsuspecting business owners. The result has been a sharp increase in the number of fraudulent ERTC claims. In fact, the IRS has already identified over 11,000 fraudulent returns

The COVID-19 pandemic was a challenging time for individuals, families, and businesses. Concern about the widespread transmission of a relatively unknown virus resulted in stay-at-home orders and forced business closures. While a practical step, it did create significant complications for many including restaurants, bars, and entertainment businesses. Additional challenges were created with the introduction of social distancing rules which only served to further complicate matters. The result was that revenue vanished while expenses compounded leaving employers with little choice other than to lay off staff.  

Originally established by the American Rescue Plan Act of 2021, the Restaurant Revitalization Fund (RRF) was designed to provide needed capital to help restaurants and other hospitality businesses keep their doors open. As one of the hardest-hit industries by the combination of stay-at-home orders and forced business closures, the capital infusion was desperately needed. The RRF provided up to $10M per business was available and repayment was not required assuming monies were used to pay eligible expenses.

Dealing with the Internal Revenue Service (IRS) can certainly be a challenging endeavor for Atlanta individuals, businesses, and organizations. There are numerous notices that are sent including those requesting additional information, notices of balances due, changes in refund amount, questions about information on the return, or notifications about delays in return processing. Although part of standard operating procedure, the significant backlog of unprocessed returns (and other communications) has resulted in inaccurate automatic notices being sent. The combination of budget constraints, staffing shortages, and worker shortages, has created a “perfect storm” at the IRS. In fact, the volume of unprocessed returns includes 2.3M unprocessed amended individual returns and 2M unprocessed employee quarterly tax returns. Although it will be some time before unprocessed returns will be addressed, new steps are being taken to relieve issues caused by inaccurate automatic notifications. The IRS recently announced a temporary suspension of over a dozen IRS notices, including automated collection notices.

Now that the pandemic has passed almost all these programs are no longer available. In fact, the recently enacted Infrastructure Investment and Jobs Act called for an early end to the Employee Retention Credit. The only remaining program is the Economic Injury Disaster Loan (EIDL) which is set to expire at year-end. Earlier today, the SBA announced new guidance to help small businesses that are considering applying for a new loan, targeted advance, or supplemental advance.

The arrival of the pandemic was so unexpected and jarring that many were caught off guard when restrictive government orders were issued. Many Atlanta businesses were forced to shut down while others could only operate in a limited capacity. Financial conditions for many business owners were dire, but desperately need help came in the form of federal COVID-19 relief programs through the Small Business Administration (SBA). One of the most popular has been the Employee Retention Tax Credit (ERC) which has provided both tax relief and refund payments throughout the pandemic. In other words, it has been an essential lifeline for those struggling to survive. In fact, in 2021 alone, more than 30,000 small businesses claimed more than $1 billion in credits.

For Atlanta businesses hit hard by the pandemic, the COVID-19 relief programs available through the Small Business Administration (SBA) have provided a desperately needed lifeline. This reality is reflected in the data which shows just how many businesses and organizations received financial assistance. Since the Paycheck Protection Program and Restaurant Revitalization Fund are now closed, many are looking towards the Employee Retention Tax Credit (ERTC) for additional relief.

The unwelcome news that the delta variant has caused an unexpected increase in the number of new COVID-19 infections in Atlanta has stirred up concern amongst business owners. Many are wondering if the restrictive government orders which wreaked havoc on so many last year will make a return. There is a concern about how businesses will manage without the benefit of the Small Business Administration’s (SBA) most popular COVID-19 program, the Paycheck Protection Program (PPP). Since recent updates to the forgiveness process reveal the SBA is looking to shut down the program, it is clear additional funding will not be allocated.

For businesses substantially affected by COVID-19, the employee retention credit (ERC) has been one of the more valuable incentives to keep workers on the payroll. Since its inception in March 2020, the ERC has undergone several modifications and extensions which has increased the credit’s value. There was an initial extension for the first half of the year in the Consolidated Appropriations Act, 2021, (CAA) and then another through the end of the year in the American Rescue Plan Act. The changes are meant to provide additional relief to businesses challenged by the pandemic.

Since the American Rescue Plan Act of 2021 (ARPA) was signed by President Biden, there has been a flurry of changes and updates impacting individual taxpayers. Initially, attention was focused on the distribution of the $1,400 economic impact payment and shifted to other issues such as the 2020 tax exemption on certain unemployment benefits. Attention quickly changed when it was announced the IRS would extend the individual tax filing deadline by 32 days to May 17th.