UPDATE - Wednesday, August 11, 2021
The IRS released additional guidance on August 10, 2021, that allows employers to exclude forgiven PPP loans, shuttered venue operators grants and restaurant revitalization grants from gross receipts in determining eligibility for the employee retention credit.12
An employer using this safe harbor must exclude these amounts from gross receipts for each calendar quarter in which gross receipts are relevant to determining the employer’s eligibility to claim the credit. Also, the employer must apply the safe harbor to all employers treated as a single employer under the aggregation rules.
1The additional guidance comes on the same day the Senate passed a bipartisan infrastructure package that would end the credit three months early, on October 1.
2The safe harbor does not permit an employer to exclude these amounts from gross receipts for any other federal tax purpose.
Last week, the IRS issued additional guidance on the employee retention tax credit, including information regarding the expansion of the credit to certain wages paid during the third and fourth calendar quarters of 2021 and additional information on miscellaneous issues that apply to the credit for qualified wages paid in 2020 and 2021.1
Background of Employee Retention Credit for 2020 and First Half of 2021
As we discussed in a previous article, in March 2020, the CARES Act created a credit against employment taxes for employers impacted by COVID-19. For 2020, a credit equal to 50% of qualified wages (not to exceed a total of $10,000 per employee) paid after March 12, 2020, and before January 1, 2021, could be claimed by employers whose operations were fully or partially suspended due to COVID-19 or who experienced a significant decline in gross receipts, although the credit could not be claimed by an employer who obtained a PPP loan.
A subsequent Gould & Ratner article described the December 2020 stimulus bill which extended the timeframe in which eligible wages can be paid to June 30, 2021 and expanded the credit percentage to 70% of qualified wages (not to exceed $10,000 per employee per quarter) and to employers whose 2021 PPP loans are forgiven (as long as the wages being used to calculate the credit are not required for the loan to be forgiven).
A Gould & Ratner article published in March and another article published in April summarized additional guidance provided by the IRS for employers claiming the credit for 2020 and the first half of 2021, respectively.
Under the American Rescue Plan Act of 2021, passed by Congress in March of 2021, the IRS extended the employee retention credit to cover qualified wages paid after June 30, 2021 and before January 1, 2022, bringing the total credit an employer may claim to $28,000 per employee for all of 2021 (up to $7,000 per employee per quarter).
IRS Guidance on Expansion of Employee Retention Credit for Second Half of 2021
The IRS Notice confirms that the rules governing the credit for the third and fourth quarters of 2021 are largely the same as for the first and second quarters of 2021, with the following exceptions:
New Guidance on Claiming the Credit for 2020 and 2021
The IRS Notice provides that the rules governing the employee retention credit in 2020 and the first and second quarters of 2021 generally continue to apply for the third and fourth quarters in 2021.
In addition, the Notice provides additional clarifications that apply to the credit for all of 2020 and 2021, including the following:
If you have any questions about claiming the employee retention tax credit, please contact one of the attorneys in Gould & Ratner’s Tax Planning Practice.
1The guidance comes as the Senate is debating a bipartisan infrastructure package that would end the credit three months early, on October 1.
2The guidance refers to average annual gross receipts of the employer for a 3 year period. However, it is unclear how an employer would have begun operating after February 15, 2020 and have 3 years of annual gross receipts.
3The Notice observes that wages paid to the owner of a partnership or other noncorporate entity, or to the owner of a sole proprietorship, generally cannot qualify for the credit.
4This extends the rule that is applicable to employers that acquired a business in 2020.