‘Every day has been like a triage’: The early end of this lucrative COVID-era tax credit is disappointing for this small business owner, but many have ignored it


Danny Schwartzman has big questions about what 2022 holds for his Minneapolis coffee shop and restaurant operations.

How many businesses will Common Roots Cafe and Common Roots Catering hold before another pandemic winter? Does his company of 25 employees have to go back to home delivery? How many people does Schwartzman need on his staff, especially in an age when labor is scarce?

Amid the uncertainty, at least Schwartzman could count on tax relief to cover his salary costs until the end of the year – one that has been worth six figures to his company since the start of the pandemic.

Congress created the employee retention credit earlier in the pandemic as an employer incentive to keep people on staff, and it was supposed to apply to wages paid through December 31. Instead of expiring on December 31, the credit applies to wages paid through September 31. 30.

Afterwards, it’s done.

“We had this known all year that we could plan,” Schwartzman told MarketWatch.

But that was before federal lawmakers passed the infrastructure bill, which President Joe Biden said he would sign.

While the recently passed bill will kick off long-term projects like transit upgrades, road repairs, and a network of electric vehicle chargers, it retroactively shortens the lifespan of employee retention credit. .

“If I hadn’t had this program I would have lost a lot of money… It’s just another thing I have to deal with.

– Danny Schwartzman, owner of Common Roots Cafe and Common Roots Catering in Minneapolis

With the Paycheck Protection Program (PPP), which offered potentially repayable loans, credit began as an aspect of relief for businesses under the CARES law of March 2020. Credit was extended and extended in the $ 900 billion bill passed in December 2020, and again during the US bailout in March 2021.

Share of firms using credit was “modest at best”, new Treasury Department says research. The low numbers are likely due to the fact that many people either did not know about credit or were afraid of its requirements, according to some small business experts.

“There are many more businesses eligible for this credit than those taking advantage of the program,” said Holly Wade, executive director of the research center at the National Federation of Independent Businesses, a trade organization representing small businesses.

In its most recent version, the refundable tax credit paid up to $ 7,000 per quarter for eligible workers.

In his most recent version, the refundable credit paid up to $ 7,000 per quarter for eligible workers. Eligible businesses had to have a drop of at least 20% in their gross revenues.

Schwartzman began accessing credit late last year. “If I hadn’t had this program, I would have lost a lot of money,” said Schwartzman, who also received PPP money.

Now, the premature termination of credit will force Schwartzman to understand his big picture issues sooner, and without the financial leeway that credit has provided. “Every day has been like a yard,” said Schwartzman. “It’s just another thing I guess I have to deal with.”

Rising costs and labor shortage

Of course, small businesses have suffered a lot. As cases of COVID-19 decline and the economy rebounds, they take a close look at the growing pains: the ups and downs in consumer confidence; rising inflation; an acute shortage of workers when there are around 10 million job vacancies; and the twists and turns and limits of government aid.

Schwartzman and people like him shouldn’t be in that position, say some small business organizations.

The infrastructure bill was “historic and indispensable,” said Sarah Crozier, spokesperson for Main Street Alliance, a small business advocacy organization. Yet, she noted, “the premature end of the [Employee Retention Credit] program, and the general philosophy of using COVID rescue dollars as a source of funding was wrong and will reduce support for needed rescue funds. “

It all amounts to “a disappointment for small businesses dependent on a critical COVID program.”

When the Senate voted 69-30 in August to approve the infrastructure bill, they shortened the term of the credit to cut costs. Then came months of Democratic negotiations on the Build Back Better Act, a bill strengthening the social safety net that lawmakers wanted to accompany the infrastructure bill. Late Friday, the House passed the Senate version of the infrastructure bill in a vote 228-206.

At the end of October, the National Federation of Independent Businesses, an organization of small businesses and other professional organizations, urged lawmakers to extend credit until the end of the year.

“Knowledge of the tax credit has increased over the past 10 months as more and more small business owners deplete their [Paycheck Protection Program] funds and still struggle to fully function in the pandemic. ” Credit, organizations wrote, “Is one of the last small business programs available to help those who qualify.” “

Now it won’t be just Schwartzman who makes the tough decisions sooner, Wade said. Other tax credit recipients “may need to make more immediate adjustments to business operations,” such as reduced working hours, reduced services or inventory, she said.

These steps might be necessary if businesses don’t have the credit funds to wait for challenges such as too few job applicants or supply chain issues, Wade said.

She said she was “very disappointed that the program ended early. There were small business owners who relied on her to help them the rest of the year, and now it’s no longer available.

Confidence among small business owners has fallen to its lowest level in seven months, according to a recurring NFIB poll released on Tuesday.

Many companies have missed the credit

Yet many businesses might not run out of credit because they did not have access to it in the first place. About 1% of employers took advantage of credit in 2020 and 3% in 2021, according to estimates from the Treasury Department’s Office of Tax Analysis.

Employers claimed $ 16.4 billion in employee retention tax credit in the second quarter of 2021, more than double the $ 7.6 billion claimed a year earlier at the same time, according to the study, noting that “it seems that employers are gradually discovering this credit.”

Other more high-profile forms of government assistance, such as the Paycheck Protection Program, may have crowded out awareness and understanding of the tax credit, said Rhett Buttle, senior advisor to Small Business for America’s Future, a coalition of small business owners and managers.

Businesses need time to understand the new tax rules and how they are applied, especially if they don’t have the accounting, human resources, and legal staff to analyze the issues, Buttle said. Time builds understanding and political support, but this credit “was so short-lived that he didn’t have much time to do it.”

A month ago, Schwartzman learned that the credit was potentially ending sooner than expected when his payroll administrator informed him that he would stop applying the estimated credits. The company did not want to put Schwartzman in a position of accumulating payroll taxes owed for credit that is no longer in use, he explained.

“It was a pretty shocking moment. It was like ‘oh that’s a problem,’ said Schwartzman

Broadly speaking, Schwartzman said the passage of the infrastructure bill was good news. But the early termination of credit is “a really worrying political decision”.

Now Schwartzman needs to plan quickly for the next step, while also running the business and taking stress out of his staff. “It’s just a very difficult situation to go through.”


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