Guidance on Employee Retention Credit Notice 2021-49
August 10, 2021 | Employee Retention Credit, ERC, Tax Credit
On August 4, 2021, The Internal Revenue Service and the Treasury Department issued further guidance on the Employee Retention Credit (“ERC”). This notice references and addresses changes made by the American Rescue Plan Act of 2021 to the ERC as it relates to the third and fourth quarters of 2021 (wages paid after June 30, 2021 and before January 1, 2022. This notice follows Notice 2021-20 and Notice 2021-23 that were issued earlier this year.
Background on the Employee Retention Credit
The Employee Retention Credit was signed into law with the passing of the Coronavirus Aid, Relief, and Economic Security Act, commonly referred to as the CARES Act. This credit is one of the many pieces of legislation that has been passed to help businesses continue operations through the Covid-19 pandemic. The ERC provides relief to businesses that had a partial or full suspension of business operations or experienced a decline in gross receipts as a result of Covid-19. The Consolidated Appropriations Act, 2021, extended the credit to cover wages paid through June 30, 2021 in the part of the bill titled “the Taxpayer Certainty and Disaster Tax Relief Act of 2020”. The credit was further extended to cover wages paid through December 31, 2021 under the American Rescue Plan Act.
Check out our blog post for more information on the ERC Extension
Highlights from Notice 2021-49
The Notice provides clarifications on the definition of “full-time employee”, including
Whether “full-time equivalents” are required to be included in the determination of whether an eligible employer is a large eligible employer or small eligible employer
Whether wages paid to employees who are not full-time employees may be treated as qualified wages if all other requirements to treat the amounts as qualified wages are satisfied.
The Notice confirms that cash tips greater than $20 are qualified wages and clarifies that employers may claim both cash tips as qualified wages for the ERC while also claiming the Section 45B Credit on the same cash tips;
If you are an eligible employer that claimed the ERC for any quarter in 2020, you must amend your 2020 return (or file an Administrative Adjustment Request) to reduce your deduction for qualified wages and health plan expenses by the amount of the ERC you claimed
PTR Advice: We are recommending to our clients that they wait to amend their 2020 return until they have received all Employee Retention Credits claimed for any quarter in 2020.
The Notice provides substantial additional guidance on the treatment of wages paid to owners (and related parties) that have more than a 50% stake in a business.
The Notice clarifies that the election to use the prior quarter to calculate a decline in gross receipts does not need to be used consistently in each quarter in 2021.
If your company has acquired a business in the 2020 or 2021 tax year, that business's gross receipts can be included in the 2019 portion of your company’s reduction in gross receipts calculation.
Please reach out to the Probity Tax Recovery team if you have any questions or concerns about any of this information or if you need help amending your Forms 941. We will work with your CPA and payroll provider to ensure you comply and get the benefit that is owed to you.