What Is the Status of the ERTC Reinstatement Act?

The Employee Retention Tax Credit (ERTC) Reinstatement Act is a legislative proposal to retroactively restore the ERTC for the fourth quarter of 2021. This bill was proposed in response to the credit’s early termination. The legislative landscape surrounding the ERTC is active, with competing proposals creating uncertainty for businesses that planned on receiving the credit for the full 2021 calendar year.

Background on the Original ERTC Termination

The Employee Retention Tax Credit was established by the CARES Act and was originally available to eligible employers for all of 2021. It provided a refundable tax credit against certain employment taxes. For 2021, the credit was worth up to $7,000 per employee per quarter, totaling a potential of $28,000 per employee for the year.

This changed with the passage of the Infrastructure Investment and Jobs Act (IIJA) in November 2021. The IIJA retroactively terminated the ERTC for most employers as of September 30, 2021, eliminating eligibility for the fourth quarter. The only exception was for “recovery startup businesses,” which were still permitted to claim the credit. This retroactive termination created confusion and financial strain for businesses that had already factored the fourth-quarter credit into their financial planning and operations.

Key Provisions of the ERTC Reinstatement Act

The central provision of the ERTC Reinstatement Act is to repeal the section of the IIJA that ended the program early. If enacted, it would retroactively restore eligibility for the ERTC for wages paid during the fourth quarter of 2021. This would allow eligible businesses to claim the credit they were originally expecting for that period.

The eligibility rules for the reinstated fourth quarter would be the same as those in effect for the second and third quarters of 2021. This includes requirements related to a decline in gross receipts or a full or partial suspension of operations due to a government order.

The act would allow businesses that experienced a 20% drop in revenue in the fourth quarter of 2021 compared to the same quarter in 2019 to qualify. It would also apply to those affected by a government-mandated shutdown. Restoring this quarter aims to provide the financial relief that businesses were counting on before the IIJA’s change.

Current Legislative Status and Outlook

The path for the ERTC Reinstatement Act through Congress has been challenging, and its future remains uncertain. For the bill to become law, its provisions would need to be attached to a larger piece of legislation. While the concept has received some bipartisan support, it has not gained enough momentum to pass as a standalone bill.

The legislative focus in Congress has shifted to other tax priorities, which has diverted attention from the push to reinstate the fourth-quarter ERTC. The bill has been introduced and referred to committee in past sessions but has not advanced to a full vote in either the House or the Senate. Its prospects are tied to the broader legislative agenda and inclusion in a larger tax or spending package.

As time passes, a retroactive reinstatement becomes more complex for both businesses and the IRS to administer. The political appetite for revisiting pandemic-era programs has also waned, creating an uphill battle for its proponents. Without a push from congressional leadership or a new legislative vehicle, the act faces a difficult path to enactment.

Impact of the Tax Relief for American Families and Workers Act

The Tax Relief for American Families and Workers Act of 2024 (H.R. 7024) introduced a conflicting objective for the ERTC. This bill passed the House of Representatives with strong bipartisan support and contained a provision to retroactively end the filing period for all ERTC claims on January 31, 2024. The proposal was intended to combat fraud and fund other tax priorities by shutting down the program early.

The statutory deadline for filing amended payroll tax returns to claim the ERTC for 2021 quarters is April 15, 2025. The provision in H.R. 7024 would have accelerated this deadline, preventing new claims from being filed after January 31, 2024. While the bill passed the House, it has stalled in the Senate and has not become law, but the support for its ERTC-ending provision indicates a legislative desire to close the program rather than expand it.

This goal directly conflicts with the ERTC Reinstatement Act, as one bill seeks to reopen the credit while the other sought to terminate its application window. The legislative focus on ending the ERTC to fund other tax changes has overshadowed efforts to reinstate the fourth-quarter credit. The IRS has also imposed a moratorium on processing new claims filed after September 14, 2023, further signaling a move toward winding down the program.