On March 1, the Internal Revenue Service (IRS) issued Notice 2021-20, which provides updated guidance on the Employee Retention Tax Credit (ERTC) as it applies before Jan. 1, 2021. The ERTC was first enacted on March 27, 2020, pursuant to Sec. 2301 of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). It provided eligible employers with a refundable tax credit up to $5,000 per employee, for qualified wages paid from March 13, 2020, through Dec. 31, 2020. The provision was extended and expanded by Secs. 206 and 207 of the Consolidated Appropriations Act of 2021 (CAA), which was signed into law Dec. 27, 2020.
Sec. 206 of the CAA made the following changes to the ERTC, as if originally included in the CARES Act: (1) clarified that eligible employers can get a Paycheck Protection Program loan and claim the ERTC, but amounts forgiven under the PPP loan cannot be considered qualified retention wages; (2) provided that group health plan expenses could be considered qualified wages when no other wages are paid; and (3) clarified the definition of gross receipts for tax-exempt organizations.
Sec. 207 of the CAA enhanced the ERTC, effective Jan. 1, 2021, through June 30, 2021. It also increased the credit from 50% to 70% of qualified wages, expanded eligibility by allowing access for companies experiencing a 20% year-over-year decline in gross receipts, and increased the per-employee creditable wage limit from $10,000 for the year to $10,000 each quarter. The CAA also made changes to eligibility rules to receive advance payments of the credit and limitations to the amount of the advances.
This notice provides employers with updated guidance based on changes made by only Sec. 206 of the CAA to the credit as it relates to the following issues:
- Eligible Employers
- Aggregation Rules Governmental Orders
- Full or Partial Suspension of Trade or Business Operations
- Significant Decline in Gross Receipts F. Maximum Amount of Employer’s Employee Retention Credit
- Qualified Wages
- Allocable Qualified Health Plan Expenses
- Interaction with Paycheck Protection Program (PPP) Loans
- Claiming the Employee Retention Credit
- Special Issues for Employees: Income and Deduction
- Special Issues for Employers: Income and Deduction
- Special Issues for Employers: Use of Third-Party Payers
- Substantiation Requirements
The Brownstein Tax Policy team will be updating its Employee Retention Tax Credit Guide in the coming days. Please note, Notice 2021-20 does not discuss changes that apply to the ERTC for 2021, but the Treasury Department and the IRS will address those changes in forthcoming guidance.
This document is intended to provide you with general information regarding updates related to the coronavirus. The contents of this document are not intended to provide specific legal advice. If you have any questions about the contents of this document or if you need legal advice as to an issue, please contact the attorneys listed or your regular Brownstein Hyatt Farber Schreck, LLP attorney. This communication may be considered advertising in some jurisdictions.