The Employee Retention Credit (ERC) and Paycheck Protection Program (PPP) were created in the CARES Act under the COVID-19 relief program. Originally, they were separate programs and an employer was only allowed to participate in one program. In December, the Taxpayer Certainty and Disaster Tax Relief Act of 2020 (Relief Act) modified the rules allowing qualifying employers to participate in both programs.
On Monday, the Internal Revenue Service (IRS) issued Notice 2021-20, which clarifies and discusses the retroactive changes from the Relief Act. The guidance includes how to determine:
- which employers are eligible;
- what constitutes full or partial suspension of trade or business operations;
- what is the maximum amount of the credit;
- what are qualified wages;
- how the credit is claimed;
- how the claim should be substantiated; and
- when related businesses required to aggregate.
The IRS already included these items in its employee retention credit FAQs, but they were not updated to reflect changes made by the Relief Act.
In general, a qualifying employer is a business that experienced a full or partial suspension of their operations or a decline of more than 50% in gross receipts in a 2020 quarter compared to the same quarter in 2019. If the employer paid qualified wages between March 12, 2020, and before January 1, 2021, they could receive a 50% credit for the qualified wages up to $10,000 in 2020. These wages would not be able to be claimed for the PPP forgiveness and the ERC.
While this notice focused on claiming the 2020 ERC the IRS plans to issue additional guidance on the 2021 credit. We recommend monitoring your 2021 receipts to verify eligibility to claim the credit. Even if you were unable to qualify for the credit in 2020 due to gross receipts or the number of employees, you may qualify in 2021. Our previous articles address the key modifiers between the credit in 2021 and 2020 and how to claim the advance credit for 2021.
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.
