As we look ahead to 2025, many business owners are wondering if a new version of the Employee Retention Credit (ERC) or similar tax credits will be introduced to help businesses facing economic challenges. While the ERC played a vital role in assisting businesses during the COVID-19 pandemic, its expiration in 2021 left many wondering if future relief will come in a similar form. With growing economic uncertainties, changes in the labor market, and potential new government policies, it’s worth considering how businesses can prepare for the next wave of tax incentives and credits, possibly mirroring the ERC.
A Brief History of the Employee Retention Credit
The ERC was a part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act in 2020, designed to encourage businesses to retain their employees during the economic hardships caused by the pandemic. The credit allowed businesses to claim up to a certain percentage of qualified wages paid to employees, helping them manage payroll costs despite revenue loss. In 2020 and 2021, the credit offered significant tax savings for small and mid-sized businesses, with different qualifications based on revenue declines or government-mandated shutdowns. However, as the economy began to stabilize, the ERC was phased out, with the last applicable period being in 2021.
Why 2025 Could Bring New Retention Credit Opportunities
While the Employee Retention Credit served its purpose during a time of unprecedented crisis, the principles behind it—providing financial support to businesses to maintain their workforce—could be revived under different circumstances. Looking forward to 2025, several factors could lead to a new iteration of employee retention credits or similar incentives:
1. Economic Uncertainty and Inflationary Pressures Even though the global economy has recovered from the worst impacts of the pandemic, inflationary pressures, rising interest rates, and new global challenges continue to weigh on businesses. If economic conditions worsen or another recession looms, the government may once again introduce financial relief programs to prevent widespread layoffs and keep employees on payroll. Businesses should stay aware of new legislative developments and be prepared to take advantage of any new incentives that might emerge.
2. Workforce and Labor Market Changes Post-pandemic labor markets have seen drastic changes, including higher turnover rates, labor shortages, and shifts toward remote work. These challenges have made it more difficult for businesses to attract and retain qualified employees. Policymakers could introduce new versions of retention incentives to help businesses keep workers in this evolving labor market. If the government looks to stabilize the workforce and promote retention amid labor market challenges, an ERC-like tax credit in 2025 could encourage employers to continue offering stable employment while receiving valuable tax relief.
3. Sector-Specific Relief While the original ERC applied broadly to most businesses, a future iteration of the credit may focus on specific industries or sectors that continue to struggle. For example, travel, hospitality, and retail have faced long-term disruptions. Targeted credits for businesses in these sectors may arise to provide relief in 2025 and beyond.
4. Green and Sustainable Business Incentives A growing trend in the tax and economic policy space is offering credits to businesses that invest in sustainability and environmentally friendly practices. If the government ties employee retention to green business initiatives, a "green ERC" could emerge in 2025, rewarding businesses that retain employees while investing in sustainable infrastructure.
How Businesses Can Prepare for Future Tax Credits If you're a business owner looking ahead to 2025 and wondering what to expect, consider these strategies to stay prepared for new tax credits or incentives:
1. Stay Informed on Legislative Changes New tax incentives often come as part of larger economic relief packages or policy shifts. Keep a close eye on legislative changes at the federal and state level, particularly around tax reforms and business relief programs. Engaging with a tax professional or joining business advocacy groups can help you stay informed and ready to take advantage of new credits as soon as they’re introduced.
2. Track and Analyze Workforce Data To qualify for an ERC-like credit in the future, you will likely need detailed records on wages, employee retention rates, and overall workforce stability. Begin tracking this data now so that if a new credit becomes available, you can easily pull the necessary documentation. This proactive approach can save you time and stress when filing for tax credits.
3. Consider Long-Term Workforce Investments While tax credits can be a valuable short-term relief, they shouldn’t be the only factor driving your employment strategy. Consider long-term investments in employee training, benefits, and retention programs. Building a strong workforce not only ensures business success but may also position you to take advantage of future incentives aimed at businesses that maintain stable employment.
4. Look for Alternative Credits and Incentives Even if a new version of the ERC doesn’t emerge in 2025, there are other tax credits available that can provide similar benefits. The Work Opportunity Tax Credit (WOTC), research and development credits, and state-specific incentives can all help reduce your tax burden while supporting your business’s growth. Stay on the lookout for credits that align with your industry and business goals.
Conclusion While the original Employee Retention Credit may have sunset in 2021, its legacy and the principles behind it may influence future government policies and tax incentives. As we approach 2025, businesses should stay informed and prepared for new relief programs or credits that could provide valuable tax savings while helping maintain a stable workforce. Whether through traditional retention incentives or new credits tied to economic recovery, businesses that are ready to act can maximize their benefits and continue to thrive in a shifting economic landscape.
Feel free to contact the tax professionals at HLG PLLC for more information or to apply for the 2021 ERC. The deadline is April 15, 2025.
