Employee Retention Tax Credit Update: 3/3/2021

IRS Issues New Guidance for the Employee Retention Tax Credit

A new notice from the IRS clarifies and describes retroactive changes under the new law that applies to 2020, primarily relating to the expanded eligibility for the credit – now including taxpayers who took Paycheck Protection Program (PPP) loans.

With regard to 2020, the employee retention credit can be claimed by employers who paid qualified wages after March 12, 2020, and before Jan. 1, 2021, and who experienced a full or partial suspension of their operations or a significant decline in gross receipts. The credit is equal to 50% of qualified wages paid, including qualified health plan expenses, up to $10,000 per employee in 2020. Meaning the maximum credit available for each employee is $5,000.

Eligible employers that received a PPP loan can claim the employee retention credit, although the same wages cannot be counted for both. Notice 2021-20 explains in detail when and how employers that received a PPP loan can claim the employee retention credit for 2020.

The notice goes on to explain (1) who are eligible employers; (2) what constitutes full or partial suspension of a trade or business operations; (3) what is a significant decline in gross receipts; (4) what is the maximum amount of an eligible employer’s employee retention credit; (5) qualified wages; (6) how an eligible employer claims the employee retention credit; and (7) how an eligible employer substantiates the claim for the credit.

Although the Notice addressed many unanswered questions, more guidance is still needed. We are anticipating a large number of amended payroll returns will need to be filed for 2020 later in 2021. Hopefully more information will be coming out shortly.

We will continue to keep you informed as more information is released.

*Resources:
Journal of Accountancy, Sally P. Schreiber , 3/2/2021.