Expanding tax credit for businesses retaining workers gains bipartisan support

Lawmakers on both sides of the aisle are expressing interest in expanding a tax credit designed to help keep workers connected to their jobs, a sign that the idea could find its way into the next coronavirus relief package.

For much of the pandemic, certain businesses have been eligible to take advantage of a refundable payroll tax credit of up to $5,000 per employee for wages and health care benefits paid through the end of the year.

Lawmakers are now offering proposals to increase the amount of the credit and make other changes in an effort to keep more workers connected to their employers.

At a time when Democrats and Republicans are divided on a number of key issues related to the next coronavirus bill, an expansion of the tax credit is emerging as an area of bipartisan agreement.

“It’s really, I think, the right approach to address the economic crisis that’s happening,” Rep. Stephanie Murphy (D-Fla.) told The Hill. “It’s both pro-worker and pro-business.”

There are many uncertainties about another coronavirus relief package, ranging from the timing of the next bill to how lawmakers address issues such as federal aid to states, liability protection for businesses and a $600 per week increase in unemployment benefits that’s set to expire at the end of July.

But there are lawmakers on both sides of the aisle who are supportive of the employee retention tax credit (ERTC) that was included in the $2.2 trillion CARES Act signed by President Trump on March 27.

Those lawmakers say they’re open to enhancing the tax credit in an effort to allow businesses to keep their employees.

Under the current version of the credit, businesses that had to curb operations or lost significant revenue due to the pandemic are eligible for a credit of 50 percent on up to $10,000 of wages and health benefits per employee that are paid through the end of the year.

For eligible businesses with 100 or fewer full-time employees, all wages are credit-eligible, whereas businesses with more than 100 employees in 2019 can claim the credit for the wages paid to employees while they’re not providing services.

A $3 trillion bill passed by House Democrats earlier this month, known as the HEROES Act, would expand the credit in a number of ways. While the bill as a whole was partisan, the section about the employee retention credit is based on bipartisan legislation from Murphy and Reps. John Katko (R-N.Y.), Suzan DelBene (D-Wash.), Brian Fitzpatrick (R-Pa.) and Chris Pappas (D-N.H.).

The House bill would increase the amount of the credit so that businesses could get a credit of 80 percent on up to $15,000 of wages per employee each quarter. It would allow businesses with 1,500 or fewer employees in 2019 to use the credit for wages paid when employees are working, rather than businesses with 100 or fewer employees.

Additionally, it would allow employers to be eligible for both the credit and the Paycheck Protection Program, while preventing businesses from double dipping and covering the same expenses with both programs.

The Joint Committee on Taxation, Congress’s nonpartisan tax scorekeeper, has estimated that the credit as expanded in the HEROES Act would be claimed by 6 million employers for a total of 59 million workers. The committee estimated that the expansion to the credit would cost about $164 billion in 2020 and 2021, on top of the $55 billion cost of the current credit.

“What we did with that retention tax credit, and what we would like to do in this next round in the HEROES Act, that would go a long way toward ameliorating some of the challenges that employers and employees have,” House Ways and Means Committee Chairman Richard Neal (D-Mass.) told reporters this past week.

House Democratic leaders included ERTC provisions in the House bill and did not include a proposal from Congressional Progressive Caucus co-chair Pramila Jayapal (D-Wash.) that would provide grants to businesses to cover the wages of workers making up to $90,000.

Jayapal spokesperson Chris Evans said expanding the ERTC is “an important step forward” but that the economic devastation caused by the coronavirus warrants a larger-scale policy solution.

Evans said that Jayapal’s proposal would cover a larger percentage of wages than the expanded credit in the HEROES Act and would last for a longer period of time. He also noted that her approach would provide benefits to businesses through existing payroll structures.

Neal said he’s open to discussions on Jayapal’s idea but thinks expanding the ERTC “seems to be workable” in the immediate future.

“We’re not trying to create something new here,” DelBene told The Hill. “We’re building on an existing program, which means we can scale it up quickly.”

A group of Senate Democrats have also offered legislation to expand the ERTC in order to help people stay employed.

Sens. Mark Warner (D-Va.), Bernie Sanders (I-Vt.), Doug Jones (D-Ala.) and Richard Blumenthal (D-Conn.) introduced a bill this month that would allow credit to cover wages and health care benefits of up to $90,000 annualized for furloughed or laid off workers.

Warner said his proposal, the provisions in the HEROES Act, Jayapal’s proposal and a proposal from Sen. Josh Hawley (R-Mo.) for a tax rebate to cover a portion of business’s payroll costs are “all in the same family of direct federal support to paychecks.”

While Democrats are more outspoken in their desire to expand the ERTC, several key Republicans have also expressed an interest.

“We’re open to it. We want to make sure we get good feedback from those who are using it, and then let’s have that discussion,” Rep. Kevin Brady (Texas), the top Republican on the House Ways and Means Committee, told reporters earlier this month.

Senate Finance Committee Chairman Chuck Grassley (R-Iowa) said the existing credit “has been effective in keeping employees on the payroll and maintaining access to their employer-based health insurance.”

“As the economy begins to re-open, Congress must evaluate what potential changes may be needed to help Americans get back to work,” he said. “Any incentives for hiring and retention need to work in conjunction with the significant unemployment benefits that the CARES Act provided.”

Business groups say they’re encouraged by the bipartisan interest and openness from lawmakers.

“Restaurants need the ability to attract and retain a qualified workforce, and the ERTC is a critical component as we reopen our doors,” said Sean Kennedy, executive vice president of public affairs with National Restaurant Association.

Some groups said they very much want businesses to be allowed to use both the Paycheck Protection Program and the ERTC, as was proposed in the HEROES Act. They said they want to make sure that businesses have another option for relief once the window closes on using Paycheck Protection Program loans.

“We’d like to make sure those who are still shut down or are struggling to reopen can still keep employees on payroll,” said Courtney Titus-Brooks manager of federal government relations at the National Federation of Independent Business.

It remains to be seen exactly what an expansion of the ERTC would look like in a package negotiated by lawmakers in both party and the White House. But congressional observers say there’s something for both Democrats and Republicans to like in an expansion.

Ben Koltun, senior research analyst at Beacon Policy Advisors, said that for Democrats, expanding the credit is a way to help workers while not coming across as anti-business. It’s also an alternative to the payroll tax holiday that Trump has made his priority.

For Republicans, an expansion of the credit would fit with their “back to work mantra,” Koltun said.

He said an expansion of the credit could be negotiated along with a “back to work bonus” being pushed by Republicans and a deal on unemployment benefits.

“There’s a runway for a negotiated outcome on all three,” he said.

Cristina Marcos contributed.