IRS Issues Guidance for Claiming Employee Retention Credit in 2021
On April 2, 2021, the IRS issued additional guidance for employers claiming the employee retention credit (ERC) under the CARES Act, as modified in December 2020 by the Taxpayer Certainty and Disaster Tax Relief Act of 2020 (Relief Act). Notice 2021-23 provides additional guidance for taxpayers to use when preparing credit claims and explains the changes to the employee retention credit for the first two calendar quarters of 2021, including:
Increased Credit Amount
- Eligible employers may now claim a refundable tax credit against the employer share of social security tax equal to 70% of the qualified wages paid to employees after December 31, 2020 and before January 1, 2022.
- The maximum employee retention credit available is $7,000 per employee per calendar quarter, for a total of $14,000 for the first two calendar quarters of 2021.
Broadened Eligibility Requirements
- Employers who suffered a 20% decline in quarterly gross receipts compared to the same calendar quarter in 2019 are now eligible.
- A safe harbor is provided allowing employers to use prior quarter gross receipts compared to the same quarter in 2019 to determine eligibility.
- Employers not in existence in 2019 may compare 2021 quarterly gross receipts to 2020 quarters to determine eligibility.
- The credit is available to some government instrumentalities, including colleges, universities, organizations providing medical or hospital care and certain organizations chartered by Congress.
Determination of Qualified Wages
- Employers with 500 or fewer full-time employees in 2019 may include all wages and health plan expenses as “qualified wages.”
- The Relief Act strikes the limitation that qualified wages paid or incurred by an eligible employer with respect to an employee may not exceed the amount that employee would have been paid for working during the 30 days immediately preceding that period (which, for example, allows employers to take the ERC for bonuses paid to essential workers).
- Employers with fewer than 500 full-time employees will be allowed advance payments of the ERC during a calendar quarter in which qualifying wages are paid. Special rules for advance payments are included for seasonal-employers and employers that were not in existence in 2019.
MFA has a team of specialists experienced in business incentives, tax credits and payroll taxes. Our combined experience can help companies to identify, substantiate and document ERC qualified wages and file those claims in a manner that minimizes business disruption. For companies with PPP loans, we can also provide guidance and assistance related to loan forgiveness calculations to help maximize all available opportunities.
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