Expansion of Employee Retention Tax Credit to include certain startup businesses

(a)

In general

Section 2301 of the CARES Act, as amended by sections 206 and 207 of the Taxpayer Certainty and Disaster Tax Relief Act of 2020 (Public Law 116–260), is amended—(1)in subsection (c)—(A)in paragraph (2)(A)(ii)—(i)in subclause (I), by striking or at the end,(ii)in subclause (II), by striking the period at the end and inserting , or, and(iii)by inserting after subclause (II) the following:

(III)the employer is a recovery startup business (as defined in paragraph (6)).

(B)by redesignating paragraph (6) as paragraph (7), and(C)by inserting after paragraph (5) the following:

(6)

Recovery startup business

(A)

In general

The term recovery startup business means any employer which—(i)began carrying on a trade or business after February 15, 2020,(ii)had less than 50 full-time employees (as defined in section 4980H(c)(4) of the Internal Revenue Code of 1986, except that subparagraph (A) of such section shall be applied by substituting quarter for month) during the calendar quarter for which the credit is determined under subsection (a),(iii)did not have gross receipts (as determined under the rules of section 448(c)(3) of such Code, without regard to subparagraph (A) thereof) in excess of $25,000 for any taxable year preceding the 5-taxable-year period ending with the taxable year preceding such quarter, and(iv)elected to have this paragraph apply for such quarter.(B)

Phaseout of credit

In the case of any recovery startup business, the amount of the credit allowed under subsection (a) for any calendar quarter (as determined without regard to this subparagraph) shall be reduced (but not below zero) by an amount equal to 1 percent of the amount of such credit for each $40,000 (or fraction thereof) by which the gross receipts (as determined under the rules of section 448(c)(3) of the Internal Revenue Code of 1986, without regard to subparagraph (A) thereof) of such business for the last taxable year ending before such quarter exceeds $1,000,000. (C)

Extensions and modifications

(i)

Limitation on number of employees

In the case of a recovery startup business, the amount of qualified wages which may be taken into account under subsection (a) by such employer for any calendar quarter shall not exceed $50,000.(ii)

Limitation on number of quarters

(I)

In general

Subject to subclause (II), in the case of a recovery startup business, the credit allowed under subsection (a) shall only apply to wages paid during any period of 2 consecutive calendar quarters (as elected by such business), as reduced by the total number of calendar quarters in which the recovery startup business—(aa)claimed the credit under this section, and(bb)did not make an election described in subparagraph (A)(iv).(II)

Exclusion

The period described in subclause (I) shall not include any calendar quarter which ends before the later of—(aa)the date of enactment of the Recovery Startup Assistance Act, or(bb)the date on which such business began operations. (iii)

Extension

In the case of a recovery startup business, subsection (m) shall be applied by substituting January 1, 2022 for July 1, 2021.

(2)in subsection (j)(2), by adding at the end the following:

(D)

Recovery startup business

Without regard to subparagraphs (A) through (C), under rules provided by the Secretary, a recovery startup business may elect for any calendar quarter to receive an advance payment of the credit under subsection (a) (after application of subsection (c)(6)) for such quarter.

, and

(3)in subsection (l)—(A)in paragraph (2), by striking and at the end,(B)in paragraph (3), by striking the period at the end and inserting , and, and(C)by inserting after paragraph (3) the following:

(4)to prevent fraudulent and abusive claims of the credit allowed under subsection (a) by recovery startup businesses.

(b)

Effective date

The amendments made by this section shall apply to calendar quarters beginning after December 31, 2020.