Employee Retention Credit: Calculations, Wages, PPP Forgiveness and More – Guidance for Q3 and Beyond
The IRS released Notice 2021-49 on August 4, which amplifies and clarifies guidance from the two previous Employee Retention Credit (ERC) Notices (see here, and here) and provides additional guidance on the American Rescue Plan (ARP) extension of the ERC for the 3rd and 4th quarters of 2021. These clarifications include, among other things:
- making the credit available to eligible employers that pay qualified wages after June 30, 2021, and before January 1, 2022,
- expanding the definition of eligible employer to include “recovery startup businesses,”
- modifying the definition of qualified wages for “severely financially distressed employers,” and
- providing that the ERC does not apply to wages considered as payroll costs in connection with a shuttered venue grant under section 324 of the Economic Aid to Hard-Hit Small Businesses, Non-Profits, and Venues Act, or a restaurant revitalization grant under section 5003 of the ARP.
We’ve summarized the key items included in the notice for claiming the credit in the 3rd and 4th quarters of 2021.
Q3 and Q4 Guidance
Miscellaneous Issues for 2020 and 2021
Notice 2021-49 also provides guidance on several miscellaneous issues with respect to the employee retention credit for both 2020 and 2021. This guidance responds to various questions that the Treasury Department and the IRS have been asked about the employee retention credit, including:
- The definition of a full-time employee and whether that definition includes full-time equivalents,
- The treatment of tips as qualified wages and the interaction with the section 45B credit,
- The timing of the qualified wages deduction disallowance and whether taxpayers that already filed an income tax return must amend that return after claiming the credit on an adjusted employment tax return, and
- Whether wages paid to majority owners and their spouses may be treated as qualified wages.
- Child or descendant of a child
- Brother, sister, stepbrother, or stepsister
- Father, mother, or ancestor of either
- Stepfather or stepmother
- Niece or nephew
- Aunt or uncle
- Son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law
- An individual (other than a spouse) who has the same principal place of abode and is a member of the household
The Department of Treasury and IRS have stated in this Notice that they will continue to monitor potential legislation related to the ERC that may impact this notice and ERC guidelines. Additional guidance may follow.
Your BMF Advisor can help you determine the applicability of your unique situation. Contact us if you have questions about these changes or how your tax status could be affected.
John E. Jenkins?>
Melissa G. Dunham?>
CPA, MTax, MBA
About the Authors
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