Momentum Swells for Job Retention Credit as Relief Talks Stall

There is widespread, bipartisan agreement that it is crucial to expand a tax credit to help businesses avoid layoffs, but the effort is stalled until a consensus is reached on another relief package

A massive loan program enacted in the CARES Act (Public Law 116-136) recently expired, but the growing number of virus cases across the country heightens the risk that many businesses may permanently shutter. The employee retention tax credit is remains a key form of pandemic relief for businesses.

A narrow relief package that Republicans released this week doesn’t include references to the credit, and negotiations haven’t resumed after faltering. As a result, legislation to broaden the credit (H.R. 6776) is stuck in limbo.

Business advocacy groups are pushing for lawmakers to allow businesses that receive Paycheck Protection Program loans under the CARES Act to have access to the employee retention tax credit, as well as to lower the loss-threshold businesses needed to use the benefit. The credit is intended to prevent layoffs and is available to all firms regardless of employee count.

Businesses are “kind of at the mercy of the economy,” Pete Isberg, ADP LLP’s vice president for government affairs said.

“Are they getting enough revenues to keep an operation, are they able to pay their employees? They can’t take another PPP loan,” Isberg told Bloomberg Tax.

Companies across industries have reported benefiting from the credit: Spirit Airlines recorded $28 million related to the credit. Best Buy reported reducing expenses by $69 million worth of the credits, and Disney projected an impact of $150 million.

Lobbying Increase

Lobbying on the retention credit has shot up since the CARES Act was enacted, with 26 organizations and companies mentioning it in their first quarter disclosure forms and at least 80 mentioning it or H.R. 6776 during the following three months.

Among those lobbying on the issue, according to second-quarter disclosures: ADP, Vanguard Group Inc., Nationwide Mutual Insurance Co., and the YWCA.

The National Association of Manufacturing and National Restaurant Association, representing two hard-hit industries, also lobbied on H.R. 6776 in the second quarter.

Many manufacturers were deemed “essential” during the early days of the pandemic and therefore failed one of two tests required for companies to claim the credit, said David Eiselsberg, senior director of tax policy at the National Association of Manufacturers.

The credit is equal to 50% of up to $10,000 in wages an employer pays to each employee.Companies can qualify for the tax break if they either shut down or had to significantly reduce their operations in 2020 due to the pandemic, or if their gross receipts fell 50% in any quarter in 2020 compared to the same quarter of 2019.

Some manufacturers are right on the bubble of the lower gross receipts test, and an expansion of the credit would provide much-needed liquidity for those companies, Eiselsberg said.

Expansion Options

The House-passed relief package (H.R. 6800) called for businesses to claim retention credits of up to 80% of employees’ wages, with the percentage phased in according to how much revenue a business lost versus its revenue from the same quarter a year ago.

Senate Republicans last month proposed boosting the credit to 65% of employee pay and increasing an annual cap on the credit to $30,000 per employee. H.R. 6800 increases that maximum to $45,000.

A slimmer package may be the route forward. Still, large gaps remain, especially regarding the extent to which the federal government should assist state and local governments. Those differences aren’t likely to be resolved quickly.

“When you hear from the restaurants, I would say frustration is apparent but it’s urgency, and it’s desperation about getting change and getting improvements to these existing programs,” said Aaron Frazier, director of health care and tax policy at the National Restaurant Association.

Rachelle Bernstein, vice president and tax counsel at the National Retail Federation, which lobbied on H.R. 6776 in the second quarter, said retailers are focused primarily on stocking stores and redesigning interiors to make customers more comfortable, and are recognizing those costs upfront and in need of liquidity.

“This is an extremely tenuous, uncertain time, where liquidity is still so important and for the retail industry,” she said.