Extend Sunset Date for ERC, Payroll Industry Group Urges

October 8, 2021

The Honorable Ron Wyden
Chairman
Senate Finance Committee

The Honorable Richard Neal
Chairman
House Ways and Means Committee

The Honorable Mike Crapo
Ranking Member
Senate Finance Committee

The Honorable Kevin Brady
Ranking Member
House Ways and Means Committee

Re: H.R. 3684 — Impact of Retroactive Termination of Employee Retention Tax Credit.

Dear Chairman Wyden, Chairman Neal, Ranking Member Crapo, and Ranking Member Brady:

Thank you for your leadership in support of using the tax code to promote stable employment and support employers in hiring and retaining workers during the COVID-19 pandemic. The Employee Retention Tax Credit (ERC) has been a driving force enabling employers to maintain employment levels and avoid economic disruptions. We urge the committees to modify the sunset date of the ERC to avoid retroactive loss of the credit and late deposit penalties.

The National Payroll Reporting Consortium (NPRC) is a non-profit trade association whose member organizations provide payroll processing and related services to roughly 2 million employers nationwide, covering nearly 40% of the private sector work force. Payroll service providers have long served an important role in our nation's tax collection system as a conduit between employers and government authorities. Payroll service providers improve the efficiency of government tax collections and improve compliance.

As your committees consider legislation to advance infrastructure and other priorities, we urge you to avoid unintended consequences that would be particularly harmful to the businesses that Congress has endeavored to protect. In particular, Sec. 80604 of H.R. 3684, the Infrastructure Investment and Jobs Act (“Termination of employee retention credit for employers subject to closure due to COVID-19”) would end the Employee Retention Credit after September rather than after December (other than for recovery startup businesses).

We understand the fiscal concerns driving the early end to the ERC program. However, because the proposal was not enacted prior to September 30 (as was likely anticipated when the Senate approved the legislation on August 10, well in advance of the chosen effective date), this provision would now have the inadvertent effect of ending the ERC program retroactively. This would be very difficult administratively, since employers are currently applying this credit by reducing their employment tax deposits, including for payrolls after September 2021. If the ERC were to be eliminated retroactively, employers that were relying on current law at the time would be required to repay any ERC subtracted from their employment tax deposits to the IRS after September. It would be very difficult — and perhaps not possible, from a legal and systemic perspective — for the IRS to avoid applying late deposit penalties to related underpayments.

This would obviously be an adverse unintended consequence, in effect punishing employers that were following law that was in effect at the time and making efforts to maintain employment levels as intended by Congress.

We urge the committees to modify the effective date of this provision to make it effective no earlier than 30 days following enactment. This would allow employers time to make the necessary adjustments to permit timely and accurate federal tax deposits, and enable the IRS to sunset the program on a prospective and orderly basis.

We would be pleased to discuss this further if it would be helpful. Thank you for your consideration.

Pete Isberg
President
National Payroll Reporting Consortium, Inc.
Henrietta, NY
909 971-7670
Pete_Isberg@nprc-inc.org