It was a throwaway message in a newsletter from QuickBooks, but it caught Larry Witzel’s eye: the Employee Retention Tax Credit.
Witzel, founder and president of SermonView, had never heard about the program before he saw it briefly mentioned in the June 2021 newsletter. He never saw it promoted or talked about. But once he discovered it and researched it, he realized that SermonView qualified for the tax credit.
“It was definitely important and really impactful for us, just because of the significant decline in revenue that we saw,” said Witzel. His fourth-quarter revenue was down 84 percent from the previous year.
Without the tax credit, he said, the company probably wouldn’t have made a couple of the year-end hires that it did. December is not normally a busy time for the company.
But December is also when he discovered that the tax credit he had been counting on had been retroactively terminated. Suddenly, he owed $24,000 to the Internal Revenue Service.
The tax credit allowed eligible companies to either get refunds on their payroll taxes from 2020 and 2021, to get advance payments on refunds for payroll taxes paid, or to avoid paying a portion of them at all. But the program was complex and changed multiple times since it was enacted in 2020.
Eligible companies either had to have been shut down because of the pandemic or had to have seen significant losses in revenue compared with 2019. The changes included the program being extended from the end of 2020 to June 2021 and then to December.
Along with timing changes, the amount of money a company could claim for the credit increased from 50 percent on the first $10,000 of wages paid per employee to 70 percent per employee.
And instead of being able to take the tax credit only annually, the law changed to allow companies to take it quarterly.
The complexities involved with the program, along with confusion about what companies were eligible if they’d also received support from the Paycheck Protection Program, likely contributed to why so few companies took advantage of it, said Tim Schiller, president of Schiller and Co., P.C.
“Most of your small businesses, what I would call the bread and butter of Clark County, I would venture to guess that most of them had not taken advantage of it and are far less impacted by the retroactive enactment,” said Schiller.
In a survey from the Association of International Certified Public Accountants released in December, 51 percent of accountants said fewer than 10 percent of their clients were impacted by the early sunset of the Employee Retention Tax Credit. About 10 percent said 75 percent of their clients were impacted, and 15 percent said it wasn’t applicable.
Small business, big problem
Witzel’s company has 10 employees. SermonView specializes in event marketing for churches around the United States and Canada. As the COVID-19 pandemic hit, he and his staff tried to experiment with things like virtual events to stay afloat. But it didn’t help.
“In-person event marketing is our bread and butter,” said Witzel. The industry was demolished by the pandemic closures.
But then Congress provided help. Using two rounds of Paycheck Protection Program funding and the Employee Retention Tax Credit, Witzel didn’t have to cut staff.
“Despite a drastic drop in our revenue, the programs allowed us to maintain full employment for everybody that wanted it,” he said, calling that his proudest moment in his 16 years of entrepreneurship.
As part of the federal infrastructure bill, the tax credit program was ended three months early. It required those using the tax credit to pay all the taxes owed for October, November and December. The bill was signed by President Joe Biden on Nov. 15. Witzel didn’t find out about the sunset until a month later.
“It was a wave of panic,” he said. His cash reserves were empty, and he still had to pay his staff. But now he also had a $24,000 tax bill and less than a month to pay it.
“If this was anybody but the federal government, you know, there’d be lawsuits about this,” he said.
“I know so many Southwest Washington small businesses are still struggling to stay afloat as we approach two years of COVID-related challenges,” U.S. Rep. Jaime Herrera Beutler, R-Battle Ground, wrote in an email to The Columbian. She added that it was her motive for supporting the CARES Act, which created the Employee Retention Tax Credit.
The congresswoman said ending the program early was a bad idea and she’s supporting legislation that would put it back in place for the last few months of 2021.
“Talk to almost any business owner, and they’ll tell you that predictability is one of the biggest keys to their success; giving them a surprise tax bill is the opposite of that,” Herrera Beutler said.
Restaurant out $80,000
Randy and Shawn Marsh have owned the Hazel Dell Skipper’s restaurant since 2008. Like Witzel, Randy Marsh didn’t discover the Employee Retention Tax Credit until the middle of 2021. He contrasts that with the Paycheck Protection Program, which received wide exposure in the media.
Because he found out about the program so late, he and his accountant had to go back through his quarterly payroll documents to seek refunds. He wasn’t able to file refunds for the last quarter of 2021, because the program was terminated early.
“I think it’s too bad that one good piece of legislation eliminated another one,” Randy Marsh wrote in an email to The Columbian.
Marsh’s company could still benefit from the tax credit, but it might take a long time.
“If you were to add up the seven quarters we refiled, my restaurant is due to get back close to $80,000, which we could drastically use,” Marsh wrote. But he’s heard that because of delays at the IRS, getting the Employee Retention Tax Credit funds can take nearly a year.
“Due to the PPP funding and various grants, we have been able to stay open, but it’s continuing to be a challenge with all the obstacles in play,” he wrote.
The Internal Revenue Service doesn’t yet have the latest numbers on how many businesses nationally or in Washington benefited from the tax credit.
The agency said it did, however, make an effort to get out the word about the program’s end. Along with a website dedicated to it, the agency issued a press release, issued reminders on social media and worked with various partners to let businesses know about the change.
More than a month later, Witzel isn’t negative or stressed about the situation. As a man of faith, he trusts in God to get his business through. And — coincidence or not — the week after he discovered his huge tax bill, his company picked up more business than it had in the prior three months combined.
“We had the cash in hand by the first week of January to make that payment, and we made the January co-payments on time,” he said. They were due Jan. 12.
Still, Witzel doesn’t understand why Congress ended the program early.
“I’ve never felt such a betrayal of trust in the government ever,” he said.
“The government came through for businesses to support their employees. The support was to maintain employment, to keep people off the unemployment rolls, and it worked really well.”