By: Derek Gray, CPA, Director & Chuck Mallick, Senior Manager
On August 10, 2021, the Senate passed a bipartisan infrastructure bill. The $1 trillion bill now moves to the House, where the Biden administration hopes for passage shortly after Congress returns from recess.
The Senate’s version of the bill contains only a few tax provisions, most notably changing the end date for the Employee Retention Credit (ERC) and issuing guidance on cryptocurrency disclosures and reporting requirements. Our summary of the significant tax provisions follows.
Employee Retention Credit (ERC)
Introduced in 2020, the Employee Retention Credit (ERC) is a refundable credit against payroll taxes. The credit was introduced as a mechanism to encourage employers to maintain payroll throughout the pandemic, and many companies have taken advantage of this credit over the last year and a half. The ERC was extended and expanded under the American Rescue Plan Act introduced by President Biden in March 2021 and is currently due to expire on December 31, 2021.
Under the Infrastructure bill passed by the Senate, the ERC will terminate on September 30, 2021, three months earlier than expected. Given this departure from the legislation introduced just a few months ago, it will be interesting to see if this provision is in the final bill that makes it to President Biden’s desk.
Crypto Reporting Compliance and Enforcement
Cryptocurrency (i.e., Bitcoin, Dogecoin, etc.) has been getting everyone’s attention lately, whether it be investors, celebrities, or the general public. Much like anything else that goes mainstream, you can believe the IRS has an opinion on the taxability and reporting requirements.
This fight began long ago, before Bitcoin was even invented, when the IRS began to see perceived abuses of reporting and tax avoidance schemes. In an effort to catch people purposefully under-reporting income, the IRS increased disclosure requirements for certain transactions, making banks and brokerage houses collect the data the IRS needed to enforce its rules.
The logical progression then is to establish some rules and reporting requirements for cryptocurrency, which until now has largely been left to the participants to disclose taxable amounts on the honor system. The infrastructure bill introduces measures for broader oversight and enforcement of the expanding digital economy. The new rules take effect for income tax returns beginning after December 31, 2023, and will provide guidance for investors, producers/miners, and consumers. It’s expected that enforcement of these new rules will raise approximately $28 billion over 10 years.
Recovery Startup Credit
To qualify for the previously mentioned ERC, an employer must meet certain criteria related to revenue declines or facility closures. If a “recovery startup business” does not qualify for the ERC under those tests, a third option is potentially available, but only for the third and fourth quarters of 2021.
A “recovery startup business” is an employer that:
1. Began carrying on any trade or business after 2/15/20,
2. Has average annual gross receipts of less than $1 million, and
3. Is not otherwise an eligible employer due to a full or partial shutdown or a decline in receipts.
If the company meets the above test, it is eligible for a credit against payroll taxes equal to 70% of an employee’s wages, up to $10,000 of wages per employee and capped in total at $50,000 per quarter.
As mentioned, it’s expected that the House will take up its version of the infrastructure bill upon return from the summer recess. Whether it passes and makes its way to President Biden’s desk–that’s a different story.
Simultaneously, with the House taking up the infrastructure bill, expect both the House and the Senate to begin debate on the budget bill. It’s expected the budget bill will be in the form of a reconciliation bill and contain several spending provisions and tax increases.
Because of the slim margin that Democrats hold in both chambers of Congress, not even a reconciliation bill, which needs only a simple majority to pass, is certain. Some members of Congress have pledged to not pass an infrastructure bill without an accompanying reconciliation bill. Others have stated they won’t vote for a reconciliation bill that has a price tag of $3.5 trillion. Republicans are somewhere between indifferent to enraged on both bills and especially dislike some of the tax provisions.
While nothing is certain, we expect there to be some manner of tax reform this fall. How much or the form it takes, please follow along with us, as we’ll be updating you as it happens.
If you have any questions or would like additional information, please contact Derek Gray at (502) 992-3480 or at email@example.com, or contact your local Blue & Co. tax advisor.