ERC Debt Ceiling Bill Update

As you may have heard by now, President Biden signed into law a bill to suspend the debt ceiling. The Fiscal Responsibility Act of 2023 (H.R. 3746, or “FRA”), which Biden signed on June 3rd, suspends the debt ceiling until January 2025.

The FRA includes a provision to rescind nearly $28 billion in unspent COVID-19 funding allocated to various federal agencies (including the CDC, Centers for Medicare and Medicaid Services, the National Institutes of Health and the Health Resources and Services Administration) as part of federal COVID-relief bills. In addition, the FRA would rescind portions of American Rescue Plan Act funding for COVID-19 testing, contact tracing as well as COVID-19 vaccines, treatments, and medical supplies. However, and most notably for small business owners, the Employee Retention Credit (ERC) was unaffected by any changes in this legislation as funds were not specifically appropriated for the ERC. This is welcoming news for small business owners throughout the U.S. as the ERC has been a financial lifeline for many.

We also note that Congress is set to immediately rescind $1.4 billion of the additional funding the IRS received as part of the Inflation Reduction Act (IRA, P.L. 117-169). Additionally, while a side-deal by lawmakers and the White House will strip an additional $10 billion in both fiscal years 2024 and 2025, the cuts are not expected to change much at the IRS in the near future.

Note, while the ERC remains active, the processing wait times could be affected as resources are reallocated by the funding cuts. In addition, the closing window to amend historical payroll tax returns (Form 941-X) to claim ERC is still looming. The 2020 ERC tax credits are set to expire on April 15, 2024, and the 2021 ERC credits are set to expire on April 15, 2025, which will mark the end of the ERC program.

Of course, nothing is guaranteed and it’s possible the ERC program can be shut down earlier than April 2025. Therefore, we recommend running the ERC analysis to ground, and if eligible, filing as soon as able.