Infrastructure Bill Tax Provisions Repeal Q4 2021 Employee Retention Credit for Most Taxpayers

UPDATED 11/15/21: President Biden has signed this bill into law.

On Nov. 5, 2021, the House of Representatives passed the Infrastructure Investment and Jobs Act. The bill, commonly referred to as the “infrastructure bill,” was passed by the Senate on Aug. 10, 2021, and is now awaiting President Biden’s signature, which will formally sign it into law. The infrastructure bill is primarily a spending bill that is designed to make investments in roads, bridges, clean water, expanded access to high-speed internet, and more. Though this bill does not contain many significant, broadly applicable tax provisions, its changes to the employee retention credit (ERC) will likely have a substantial impact on businesses that were planning to claim ERC benefits for the fourth quarter of 2021.

The infrastructure bill repeals the ERC for the fourth quarter of 2021 with respect to employers whose business was partially or fully suspended by government orders due to COVID-19 or employers who suffered a significant decline in gross receipts. The ERC is still available in the third and fourth quarter of 2021 for employers that qualify as recovery startup businesses, which means ERC eligibility for a recovery startup business was not retroactively repealed. (For more information on eligibility as a recovery startup business and how employers may still qualify for a fourth quarter 2021 ERC, click here.)

In anticipation of the credit, taxpayers have been able to reduce payroll deposits and/or request an advanced refund. It is unclear how the retroactive repeal for fourth quarter 2021 will be applied to employers that have failed to timely deposit payroll taxes in anticipation of claiming ERC for the fourth quarter of 2021. The American Institute of Certified Public Accountants wrote a letter to the House Ways and Means Committee requesting that it issue a directive to the Treasury Department and IRS to provide penalty relief for taxpayers and to provide a “reasonable, practical method for payment of unpaid employment taxes.” Employers that have retained payroll taxes in anticipation of receiving ERC benefits for the fourth quarter of 2021 need to review their situations. We expect the IRS will issue guidance to provide employers with a process for remitting the retained payroll taxes, but the timing for such guidance is unknown at this time.

Other Tax Provisions in the Infrastructure Bill

New Cryptocurrency Reporting Requirements

The infrastructure bill includes a couple of new reporting requirements for brokers of digital assets and those receiving digital assets in their trade or business. The legislation defines brokers as “any person who (for consideration) is responsible for regularly providing any service effectuating transfers of digital assets on behalf of another person.” A digital asset is defined as “any digital representation of value which is recorded on a cryptographically secured distributed ledger or any similar technology as specified by the Secretary.”

Based on these definitions, all cryptocurrency exchanges (e.g., Coinbase, Gemini, Robinhood, etc.) will be considered “brokers” and will be subject to the same reporting requirements as traditional brokers. More specifically, they will have to provide the IRS with the name, address, and phone number of each customer; the gross proceeds from any sale of digital assets; the capital gain or loss from these sales; and the holding period of the assets sold. The legislation does not mention the IRS form to be used for this reporting, but commentary from the Treasury Department states that this will be reported on Form 1099-B just like stocks and securities. The Treasury Department has also stated that the above definition of broker will not subject developers, miners, or software and hardware providers to these reporting requirements unless they also act as brokers. This guidance from the Treasury Department is not official, and these new reporting requirements do not go into effect until Jan. 1, 2023, so there is still time for official regulations to be issued.

In addition to the above reporting requirements for brokers, the infrastructure bill expands the definition of “cash” for purposes of Form 8300 (Report of Cash Payments Over $10,000 Received in a Trade or Business). Historically, any person engaging in a trade or business that receives more than $10,000 in cash in one transaction (or in two or more related transactions) is required to file Form 8300. The infrastructure bill adds digital assets to the definition of “cash” for purposes of Form 8300 filing requirements. This rule is slated to go into effect Jan. 1, 2024.

Other Tax Provisions

The infrastructure bill also includes several tax provisions that will enact the following:

• Make automatic extensions available for certain taxpayers impacted by federally declared disasters
• Expand the type of projects that can be funded with tax-exempt bonds
• Restore the exemption for capital contributions to regulated public utility companies
• Delay the reduction of various excise fuel taxes

What’s Ahead for Taxpayers

The more significant, far-reaching tax proposals that have been discussed throughout the summer are contained in the Build Back Better Act, which is also known as the reconciliation bill. The proposed text of the Build Back Better Act continues to change, and there are no votes scheduled at this time. Thus, the future of the Build Back Better Act is currently unknown with respect to both content and timing, including whether it will pass at all.

We’ll continue to monitor the situation and will provide updates. Please reach out to your KSM advisor with any questions or complete this form.