Frost Law
Many people are asking, "when does the ERC expire?" Of course, even that question is nuanced. Some are really asking "how much longer do I have to file" while others are actually wondering if the government may act to end it altogether. Particularly, for those in the latter group, the ongoing battle in Congress over whether to raise or suspend the nation’s debt limit has produced a bill that leaves employers and tax practitioners asking if the ERC will soon be on the chopping block.
On April 19, 2023, the House voiced its position in “The Limit, Save, Grow Act of 2023,” (the “Act”). As proposed, it would suspend the debt limit until March 31, 2024, or until the debt reaches $1.5 trillion. Besides establishing caps on fiscal year 2024 discretionary funding and various other measures, it also proposes to rescind (or cancel) “unobligated” COVID aid. Understandably, this latter proposal has fueled serious concerns among employers and practitioners that the Employee Retention Credit (ERC) could be one of the COVID aid measures rescinded if the legislation passes. But what does “unobligated” mean, and does it actually implicate tax credits like ERC? If this bill becomes law, is the ERC still available?
We find the relevant language in Div. B, Title I, §201 of the Act. It’s a remarkably brief section titled: Rescission of unobligated coronavirus funds. The section states:
The unobligated balances of amounts appropriated or otherwise made available by the American Rescue Plan Act of 2021 (Public Law 117–2), and by each of Public Laws 116–123, 116–127, 116–136, and 116–139 and divisions M and N of Public Law 116–260, are hereby permanently rescinded.
No definition of “unobligated” is provided in that section, or even in that Title. Without more, it’s easy to understand why people asking, “when does the ERC expire” are beginning to answer with “if the Limit, Save, Grow Act of 2023 passes.” However, the troublesome term, “unobligated,” is widely used throughout the laws that would be subject to the language in §201 of the Act, so we must turn to other sources for clarification.
While the Act itself doesn’t define the term “unobligated” in the ERC context, there is clearly a consensus reverberating throughout the government that it refers to amounts not already subject to legally binding obligations. And this appears to be significant in the ERC context. On May 23, 2023, the U.S. Chamber of Commerce stated that:
The House-passed debt limit bill rescinds $56 billion in unspent, unobligated COVID funding. According to the Congressional Budget Office (CBO), most of the reductions would come from the Public Health and Social Service Emergency Fund and from infrastructure, rental assistance, community development, and disaster relief programs. Notably, the bill did not rescind funds, totaling approximately $316 billion, that are subject to legally binding obligations. Savings: $56 billion in budget authority.1
Following the U.S. Chamber of Commerce’s lead, we look to see what the CBO has to say on the matter. We find helpful insight in a recent letter from the CBO which discusses the “CBO’s Estimate of the Budgetary Effects of H.R. 2811, the Limit, Save, Grow Act of 2023.”2 In that letter, the CBO clarifies that, as proposed, the bill would rescind funds from an assortment of laws enacted between 2020 and 2022.3 More specifically, on pages 8 and 9 of this letter, the CBO emphasizes that:
Finally, CBO’s estimate does not include any reductions in budget authority or outlays related to entitlements or tax credits that are provided for in the specified laws because the bill would not affect the government’s underlying authority to incur obligations for those programs.
The ERC falls squarely within the definition of a payroll tax credit provided for within those specified laws; thus, we believe it would be extraordinary if the Act would be able to rescind, or cancel, it. In other words, the ERC end date does not appear to be mandated under the Act.
The Act sailed through the House by a 217-215 vote, but it’s going nowhere fast in the Senate. However, many who are following the debt limit developments see the Act’s repeal of unspent COVID aid as a likely area of agreement that could ultimately appear in an agreed upon debt limit agreement final package. So, it’s important to understand as we’ve outlined here, that as proposed, the ERC does not appear to be in jeopardy of being “rescinded”—rather than being an “unobligated” source of aid, it is a tax credit for which the government remains authorized to incur obligations to remit ERC funds to any eligible employers.
Remember, the ERC is still available for qualifying businesses. If you need help with your ERC claim or want a second opinion, contact our team today at (410) 497-5947 or schedule a free, confidential consultation.
Update: On Saturday, June 3, 2023, President Biden signed H.R. 3746, the “Fiscal Responsibility Act of 2023, extending the federal debt limit through 2024. The terms of this deal were structured in direct response to the House’s earlier "Limit, Save, Grow Act of 2023." For our purposes here, we note that the legislation that was ultimately passed should preserve the same treatment of ERC as we outline below.
Many people are asking, "when does the ERC expire?" Of course, even that question is nuanced. Some are really asking "how much longer do I have to file" while others are actually wondering if the government may act to end it altogether. Particularly, for those in the latter group, the ongoing battle in Congress over whether to raise or suspend the nation’s debt limit has produced a bill that leaves employers and tax practitioners asking if the ERC will soon be on the chopping block.
On April 19, 2023, the House voiced its position in “The Limit, Save, Grow Act of 2023,” (the “Act”). As proposed, it would suspend the debt limit until March 31, 2024, or until the debt reaches $1.5 trillion. Besides establishing caps on fiscal year 2024 discretionary funding and various other measures, it also proposes to rescind (or cancel) “unobligated” COVID aid. Understandably, this latter proposal has fueled serious concerns among employers and practitioners that the Employee Retention Credit (ERC) could be one of the COVID aid measures rescinded if the legislation passes. But what does “unobligated” mean, and does it actually implicate tax credits like ERC? If this bill becomes law, is the ERC still available?
We find the relevant language in Div. B, Title I, §201 of the Act. It’s a remarkably brief section titled: Rescission of unobligated coronavirus funds. The section states:
The unobligated balances of amounts appropriated or otherwise made available by the American Rescue Plan Act of 2021 (Public Law 117–2), and by each of Public Laws 116–123, 116–127, 116–136, and 116–139 and divisions M and N of Public Law 116–260, are hereby permanently rescinded.
No definition of “unobligated” is provided in that section, or even in that Title. Without more, it’s easy to understand why people asking, “when does the ERC expire” are beginning to answer with “if the Limit, Save, Grow Act of 2023 passes.” However, the troublesome term, “unobligated,” is widely used throughout the laws that would be subject to the language in §201 of the Act, so we must turn to other sources for clarification.
While the Act itself doesn’t define the term “unobligated” in the ERC context, there is clearly a consensus reverberating throughout the government that it refers to amounts not already subject to legally binding obligations. And this appears to be significant in the ERC context. On May 23, 2023, the U.S. Chamber of Commerce stated that:
The House-passed debt limit bill rescinds $56 billion in unspent, unobligated COVID funding. According to the Congressional Budget Office (CBO), most of the reductions would come from the Public Health and Social Service Emergency Fund and from infrastructure, rental assistance, community development, and disaster relief programs. Notably, the bill did not rescind funds, totaling approximately $316 billion, that are subject to legally binding obligations. Savings: $56 billion in budget authority.1
Following the U.S. Chamber of Commerce’s lead, we look to see what the CBO has to say on the matter. We find helpful insight in a recent letter from the CBO which discusses the “CBO’s Estimate of the Budgetary Effects of H.R. 2811, the Limit, Save, Grow Act of 2023.”2 In that letter, the CBO clarifies that, as proposed, the bill would rescind funds from an assortment of laws enacted between 2020 and 2022.3 More specifically, on pages 8 and 9 of this letter, the CBO emphasizes that:
Finally, CBO’s estimate does not include any reductions in budget authority or outlays related to entitlements or tax credits that are provided for in the specified laws because the bill would not affect the government’s underlying authority to incur obligations for those programs.
The ERC falls squarely within the definition of a payroll tax credit provided for within those specified laws; thus, we believe it would be extraordinary if the Act would be able to rescind, or cancel, it. In other words, the ERC end date does not appear to be mandated under the Act.
The Act sailed through the House by a 217-215 vote, but it’s going nowhere fast in the Senate. However, many who are following the debt limit developments see the Act’s repeal of unspent COVID aid as a likely area of agreement that could ultimately appear in an agreed upon debt limit agreement final package. So, it’s important to understand as we’ve outlined here, that as proposed, the ERC does not appear to be in jeopardy of being “rescinded”—rather than being an “unobligated” source of aid, it is a tax credit for which the government remains authorized to incur obligations to remit ERC funds to any eligible employers.
Remember, the ERC is still available for qualifying businesses. If you need help with your ERC claim or want a second opinion, contact our team today at (410) 497-5947 or schedule a free, confidential consultation.
