Democrats mulling revival of employee retention tax credit

Small businesses and nonprofits are lobbying for a return of the pandemic aid provision

Senate Small Business Chair Benjamin L. Cardin says senators are considering putting the employee retention tax credit back in place after retroactively cutting it off at the end of September. (Tom Williams/CQ Roll Call file photo)
Senate Small Business Chair Benjamin L. Cardin says senators are considering putting the employee retention tax credit back in place after retroactively cutting it off at the end of September. (Tom Williams/CQ Roll Call file photo)
Posted February 7, 2022 at 7:00am

Democrats are considering bringing back a tax benefit meant to help smaller businesses, nonprofits and their employees weather the COVID-19 pandemic.

Senate Small Business Chair Benjamin L. Cardin, D-Md., said senators are considering putting the employee retention tax credit back in place after retroactively cutting it off at the end of September. While key Democrats are interested, critical Republican backing remains uncertain.

Attention to the program comes as the omicron variant has triggered a surge in cases and as small businesses and nonprofits are lobbying to get the aid back.

“It was a popular credit that we put in during COVID,” Cardin said. “It’s on the table depending on how we proceed on COVID relief, and it’s also on the table in terms of tax issues. So it’s being talked about, but there’s been no decisions made on that.”

Cardin said Oregon Democrat Ron Wyden is particularly interested in the tax credit, giving the effort a powerful ally in the chair of the tax writing Finance Committee.

“I like this program,” Wyden said. “I think it makes sense, and I want to talk to my colleagues about what we can do.”

Wyden said he was involved in crafting the relief, then as ranking member in March 2020, because he believes “there’s a kind of symmetry between small businesses and workers.”

Congress created the program as part of the first COVID-19 relief package, allowing businesses and nonprofits that shut down because of government orders or saw sales plunge to claim a credit if they’d furloughed or reduced their workforce. Smaller businesses hit hard by the pandemic could claim it whether they’d kept all workers on or not.

Lawmakers expanded it twice in later rounds of pandemic aid, ultimately making it worth up to $28,000 per employee through the end of 2021 and allowing businesses with up to 500 employees to qualify whether or not they’d furloughed or laid off workers.

Because the credit is refundable, it was available beyond what an organization owed in taxes, meaning tax-exempt nonprofits could still get the aid.

Then in the fall, lawmakers and the Biden administration ended the program early as an offset in a separate package. The bipartisan infrastructure law revoked it for the last three months of 2021 to generate $8.2 billion in revenue. Because of a delay in passing the law in the House, the move was retroactive and meant some recipients might have to pay back aid they’d already taken.

Last summer when Senate negotiators were putting together the infrastructure package, they viewed the employee retention credit as an "underutilized" provision that could be jettisoned to help offset new spending.

Congressional Budget Office Director Phillip L. Swagel wrote to Sen. Kyrsten Sinema, D-Ariz., in a letter dated July 16, 2021, that out of an estimated $85 billion cost combining the initial credit and two subsequent rounds of extensions and modifications, just $18.4 billion in employee retention credits had been claimed through the first quarter of 2021.

Swagel wrote that may have been partially due to the credit's interaction with other pandemic relief programs and shifting conditions as the economy rebounded.

Including the $8.2 billion offset from terminating the retention credit early, the CBO estimates the bipartisan infrastructure law will still add $256.1 billion to federal deficits over the next decade.

New lobbying push

Small businesses and nonprofits balked at the move at the time and are now lobbying Congress to restore the employee retention tax credit for 2021’s final quarter. Some are pressing policymakers to extend it further, arguing a revival should be part of any fresh pandemic aid.

Oregon nonprofits wrote to Wyden in September, urging him to include a provision extending the credit through the fourth quarter and all of 2022 in Democrats’ roughly $2 trillion social safety net and climate package. Other major charities, such as United Way, the Girl Scouts and Meals on Wheels America, sent members of Congress the same request.

Small businesses and charitable nonprofit groups are now focused on new pandemic relief as a potential vehicle, including a package of small business aid that Cardin is working on with Sen. Roger Wicker, R-Miss. It remains unclear if and how that proposal — the details of which have not been made public — would make it through the Senate.

A bipartisan House bill would bring back the tax credit for the final months of 2021, but similar legislation hasn’t yet been introduced in the Senate.

Cardin said there would be opportunities to act on the employee retention credit by attaching it to a larger vehicle, which could include an omnibus spending bill that’s under negotiation or a package extending popular bipartisan tax provisions that expired at the end of last year.

But that would require support from at least 10 Republicans to get the provision through the evenly divided chamber. Some GOP senators said Thursday they hadn’t been looped into any discussions on reviving the program and would need to consider whether it’s a proposal they could support.

Louisiana Republican Bill Cassidy, a Finance Committee member who was among 10 negotiators of the infrastructure law that ended access to the credit early, said he’d have to study the program and whether it’s worked. He said he’d also have to consider what other pandemic relief it was part of.

'A good program'

The Finance panel’s ranking Republican, Michael D. Crapo of Idaho, said he hasn’t been involved in any talks on bringing back the employee retention tax credit and that not much is currently being discussed in terms of additional pandemic aid.

While he backed the retention credit, Crapo pointed to existing unspent funds as a potential holdup, an issue fellow Republicans have also raised when asked about fresh relief.

“I’m certainly not opposed,” he said. “The employee retention program was a good program. The question I have is whether we need additional COVID packages right now while we’re still rolling out the previous packages.”

Some top Democrats have said they see the need for new aid due to the rapid surge in cases from the omicron variant in recent weeks, though numbers are now starting to drop again.

“The pandemic’s still with us, and it’s difficult for businesses,” Cardin said. “And retaining workers is an important part of our overall strategy: reduces unemployment insurance, helps our economy.”