Tax Issues In The Infrastructure Bill: Its Fluid

Tax Issues In The Infrastructure Bill: Its Fluid

 Pinpointing anything solid in the Infrastructure bill  is a perilous task given the day-to-day changing landscape in Congress. Nevertheless, it appears most of the initial tax increases impacting small business owners have been taken off table. We’ll briefly outline a few things as they currently stand.

 What looks to be out-of-the-bill at this point:

•  Increase in individual and corporate rates
• Increase in capital gains tax
• Cutting the estate tax exemption in half
• Basis step up on inherited assets
• Small business 20% tax deduction

What appears to be on the table:

• Increase the individual deduction for state  and local tax (SALT).
• Minimum tax on large corporations
• Tax on large-corp book income (those that have high book income but low taxable income).

Employee Retention Credit: Again

We are talking about this one more time because it is the most underutilized and misunderstood tax break available to a small business. This credit is one in a group of the three (unlimited expensing and PPP forgivable loan) most important benefits afforded a small business owner over the last several years. Here’s why:

• It’s a free shot. It’s a refund on payroll dollars that have already been spent to pay employees.
• Receiving a PPP loan (and subsequent forgiveness) doesn’t disqualify the credit.
• New businesses that “started” in 2020 can qualify.
• The bar to qualify is fairly low, especially in 2021.
• It’s retroactive to 2020 (i.e. available for both 2020 and 2021).
• Qualification parameters are fairly simple to determine.
  

 The following are several questions that can assist you in researching this credit.

Is my business too big? In 2021, you are if you have over 500 employees. In 2020 the limit is 100 employees. Otherwise, you are good.

How do I know if I qualify?

At a minimum, if one of three things occurs you need to investigate:

1.  2020: you had a quarterly decline of 50% or more in gross receipts over same quarter of 2019. If so, the credit is 50% on up to $10,000 of annual wages and health benefits paid per employee. Thus, $5,000 is the maximum annual credit per employee for all of 2020.
2.  2021: the credit is expanded for businesses who have, or will, experience a 20% quarterly decline in 2021 revenue over 2019. If so, the credit is 70% on the first $10,000 of quarterly wages and health benefits paid per employee. Thus, the maximum credit per quarter, per employee is $7,000. 
3. You fully or partially suspended operation during any calendar quarter in 2020 due to orders from an appropriate governmental authority limiting commerce, travel, or group meetings (for commercial, social, religious, or other purposes due to COVID-19.

Does PPP loan forgiveness disqualify me? No. Small business owners that qualify can receive both PPP loans 1 & 2 and the Employee Retention Credit.  However, you can’t use the same wages in calculating the credit and forgiveness.

What if I started a new business? The credit was expanded to include small start-ups opening after February 2020 having less than $1 million in average gross receipts.