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Infrastructure Act signed into law, affects Employee Retention Credit for Q4

by Megan Roberts, Extension educator

On November 15, the bipartisan infrastructure bill, known formally as H.R. 3684 - Infrastructure Investment and Jobs Act, became law. The wide-ranging law is, as the name suggests, primarily aimed at nationwide infrastructure improvements and transportation. In this brief summary post, I will cover a few provisions of relevance to agricultural and rural audiences and then dive deeper into a parameter of the law that affects a COVID-19 tax provision addressed previously on the Ag Business Management blog: the Employee Retention Credit.  

Select rural and ag provisions

While one could effectively argue roads and transportation infrastructure are inextricably linked to agriculture, for brevity, I am only highlighting a few selected ag and rural-related sections of the 1,039 page law. 

Division F covers broadband internet access. In Division F, Title 1 the law outlines broadband grants for unserved and underserved locations, many of which are rural and/or tribal. $42.45 billion is appropriated to the Act’s broadband grants (Section 60102). Division F, Title V continues in the aim to increase access to broadband, in this case through broadband affordability. Affordable connectivity rates are determined by income levels and other factors of local regions. In total, Congress appropriated approximately $65 billion to broadband-related improvements.

Division G, Title V initiates a bioproduct pilot program for use of agricultural commodities in consumer and construction goods. This appropriation is relatively small at $2 million.

Division J, Title I appropriates $918 million to the United States Department of Agriculture (USDA) Natural Resources Conservation Service (NRCS) for watershed related programs, and an additional $2 billion in support of broadband to the USDA Rural Development’s Rural Utilities Service’s Distance Learning, Telemedicine, and Broadband Program.

In terms of agricultural appropriations, these amounts are relatively minimal—outside of the large rural infrastructure and broadband appropriations. It is expected if further legislation is passed in 2021, more agricultural related provisions will be included. It is also worth noting that, while not a part of the November 15 infrastructure law, prior negotiations that went into this infrastructure legislation resulted in the September 30 signing of H.R. 5305 - Extending Government Funding and Delivering Emergency Assistance Act, informally known as the 2021 Continuing Resolution. Within the September 30 law, Division B, Title 1 appropriated $10 billion to the USDA for disaster commodity payments for losses associated with droughts, wildfires, hurricanes, floods, derechos, heat, winter storms, and excessive moisture during 2020 and 2021. Drought is defined as D2 on the US Drought Monitor for eight consecutive weeks, or D3 or higher at any time. Milk, crops, trees, bushes, and vines, are included in the eligible commodities for the disaster relief for 2020 and 2021, subject to other qualifying factors. Livestock, affected by drought and/or wildfires, are included for 2021. For crop commodities, it is expected these funds may be distributed similar to the 2018 and 2019's Wildfire and Hurricane Indemnity Program Plus (WHIP+) (see note below for additional information about 2019 WHIP+ payments).

Funding the law with cost savings, including termination of Q4 Employee Retention Credit

Division H and Division I of the Infrastructure Act address revenue and other related matters to funding the overall cost of the law.

Division H, Title VI terminates the COVID-19 related employee retention credit (ERC) early, making quarter 4 of 2021 ineligible for tax credit (Section 80604). ERC, first authorized via March 27, 2020’s Coronavirus Aid, Relief, and Economic Security (CARES) Act, is a fully refundable payroll tax credit that incentivized employers to keep employees employed by lowering payroll tax liability. Originally, ERC was not allowed if a business participated in the Paycheck Protection Program (PPP). For many ag employers, PPP was more financially beneficial, and ERC was not very popular with farmers in 2020. The Consolidated Appropriations Act (CAA), passed December 27, 2020, retroactively allowed PPP participants to qualify for ERC if they met the decline in gross receipts test and/or faced a closure due to COVID-19. Employers borrowing under PPP were eligible if they met ERC qualifications and had additional wages available not already covered by PPP funds. The CAA also modified some of ERC provisions and extended the ERC into quarter 1 and quarter 2 of 2021. The American Rescue Plan Act (ARPA), passed March 11, extended ERC into quarter 3 and quarter 4 of 2021. Due to these changes in ERC, the tax credit become more widely used by agricultural employers as time continued.

For 2020, to qualify under the gross receipts reduction, a business must have had a more than 50 percent decline in a quarter as compared to 2019. In 2021, the gross receipts reduction threshold became easier to meet at just a 20 percent or more decline in a quarter as compared to 2019. The 2021 ERC covers up to 70 percent of qualified wages, while the 2020 ERC covered up to 50 percent of qualified wages. Due to the unique rules of ERC, if a business qualified for one quarter under the gross receipts calculation, the next quarter was also eligible. 

With the passage of the Infrastructure Act, businesses are advised that quarter 4 of 2021 is no longer eligible for ERC, and the program concludes as of October 1, 2021. The only exception is for “recovery start-up businesses,” which are able to continue to claim the credit, if eligible, through January 1, 2022.

Division I covers other cost savings associated with funding the construction and infrastructure activities of this law, including rescission of unspent COVID-19 appropriations such as remaining funds for PPP, targeted EIDL advances, and other associated business disaster relief.

Legislation may change. This blog is educational in nature and not financial, tax, or legal advice.

Note. Starting November 8, USDA began making the third and final payment for previously calculated 2019 WHIP+ payments. This amount was equal to 10% of the calculated payment and brings the total payment to 100%. 

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