Bipartisan Group of Lawmakers Introduce Employee Retention Tax Credit Repeal Act
In response to concerns over fraudulent claims over the past few years, Senators Joe Manchin (I-WV), Mitt Romney (R-UT), and Thom Tillis (R-NC) recently introduced the Employee Retention Tax Credit (ERTC) Repeal Act, which would end ERTC claims filed after January 31, 2024 and increase penalties for fraudulently claiming the credit. This bill could reduce deficits by up to $80 billion if enacted.
First passed as part of the CARES Act, the ERTC is a refundable tax credit designed to incentivize employers to keep employees on payroll during the COVID-19 pandemic. Because of low uptake in most of 2020, the credit was expanded by the Response & Relief Act in late 2020 and the American Rescue Plan Act in early 2021, allowing employers to claim up to $28,000 per retained employee but was ended in September 2021 by the bipartisan infrastructure law. As with most tax credits, businesses can claim the credit with amended returns up to three years after they filed their original return, meaning that businesses can continue to claim the credit for wages through July 2021 until April 2025.
While the ERTC was created to support businesses affected by the COVID-19 pandemic, it has since become a target for fraud, prompting the IRS to put a moratorium on processing claims. Its repeal and increased penalties for fraudulent claiming was included in the bipartisan House-passed Tax Relief for American Families and Workers Act, which failed to overcome a filibuster in the Senate. This prompted the ERTC Repeal Act, which was also introduced in the House by Representatives David Schweikert (R-AZ), Jared Golden (D-ME), Mike Kelly (R-PA), and Glenn Grothman (R-WI).
Maya MacGuineas, president of the Committee for a Responsible Federal Budget, praised the idea of repealing the ERTC in a statement upon the bill’s introduction as a no brainer to help address our fiscal situation:
Fixing the national debt will require a lot of tough choices, but this isn’t one of them...The Employee Retention Credit was supposed to help struggling small businesses retain their workforce, at a cost of $80 billion. Thanks in part to predatory grifters and scam artists, costs could exceed $550 billion, with little of that money helping its intended targets…There is simply no justification for continuing this credit, especially now that we are several years out from the worst of the pandemic while a cottage industry marketing ways to claim it continues to work on defrauding the government.
Repealing the ERTC is a commonsense way to combat fraud and reduce the deficit, and Congress should do so soon.
