Businesses and institutions that were able to retain employees throughout the difficult months of 2020 may be eligible for a beneficial tax credit created by the CARES Act and extended by further coronavirus relief legislation. But employers should pay special attention to recent IRS guidance that provides some key details on when and how they can claim the credit.
Of particular note, Notice 2021-20 describes how the employee retention credit, which has been amended and extended by further coronavirus relief legislation, addresses how the new legislation effects eligibility and how the credit relates to organizations that received Paycheck Protection Program (PPP) loans.
In broad strokes, employers should know:
- For 2020 returns, the credit can be claimed by employers who paid qualified wages after March 12, 2020 through Dec. 31, 2020, and who experienced a full or partial suspension of operations. The credit was extended to also cover the period after Dec. 31, 2020, through June 30, 2021.
- For 2020 returns, a company is eligible for the credit if they experienced a 50% reduction in gross receipts in any of the final three quarters compared to the same quarter in 2019. For the 2021 credit, the reduction per quarter required has been changed to 20% and would be compared to the same quarter in 2019.
- Qualified wages for an employer that averaged more than 500 full-time employees in 2019 are generally those wages paid to employees that are not providing services because operations were fully or partially suspended or due to the decline in gross receipts.
- Qualified wages for an employer that averaged 500 or fewer full-time employees in 2019, are generally those wages paid to all employees during a period that operations were fully or partially suspended or during the quarter that the employer had a decline in gross receipts regardless of whether the employees are providing services.
- For 2020, the credit is equal to 50% of qualified wages paid, including qualified health plan expenses, up to $10,000 per employee.
- For 2021, the credit is equal to 70% of qualified wages paid, up to $10,000 per employee per calendar quarter.
- Concerning 2020, eligible employers that received PPP loans can take the credit, but according to the notice, “qualified wages for which the employer claims the credit are excluded from payroll costs paid during the covered period (payroll costs) that qualify for forgiveness.”
The IRS Notice is 102 pages, so it’s understandable if every organization doesn’t have the bandwidth to make it through the entire document. Fortunately, our experts can help with your tax concerns and other issues related to coronavirus relief programs. Schedule a chat, and check out our Resources page here.