Notice 2021-23 provides the following key rules for the ERTC program for wages paid after December 31, 2020 through June 30, 2021: In addition to the specific issues discussed above, Notice 2021-23 includes further discussion of the rules for ERTCs claimed for the first two calendar quarters of 2021. of Notice 2021-20 are generally applicable to ERTCs for the first two calendar quarters of 2021. > IRS clarifies employee retention tax credit rules for Q1 and Q2 of 2021. 206 0 obj <>/Filter/FlateDecode/ID[<92C12BE1DDD12D4C93BD9798762F6FE7><7ED67C34B5C8EC419FF6756571D33361>]/Index[199 11]/Info 198 0 R/Length 55/Prev 149074/Root 200 0 R/Size 210/Type/XRef/W[1 2 1]>>stream The Relief Act removed the term qualified health plan expenses from the definition of qualified wages under section 2301(c)(3) of the CARES Act and included health plan expenses as part of the definition of wages in section 2301(c)(5) of the CARES Act. The Notice provides that cash tips received by an employee in a given calendar month amounting to $20 or more can be treated as qualified wages for ERC purposes assuming the other requirements are met. under the facts and circumstances. (Answer 17, FAQ 34.) Documentation related to the determination of whether the employer is a member of an aggregated group treated as a single employer for purposes of the employee retention credit and, if so, how the aggregation affects the determination and allocation of the credit. Any term defined in this Section II or within a Q/A in As we have previously discussed, Notice 2021-20 formalized much of the informal guidance on the application of ERTCs that was issued by the IRS via FAQs over the course of 2020. As amplified by Notice 2021-49, the rules set out in Notices 2021-20 and 2021-23, which provided guidance under the ERC as enacted by the Coronavirus Aid, Relief, and Economic Security (CARES) Act, P.L. (Answer 11. Notice 2021-20 explained that under Code Sec. Under the ERC as originally enacted, the credit was 50% of qualified wages (including qualified health plan expenses), up to $10,000 in wages for all quarters in 2020. 0 In March and April 2021, the IRS provided employers with more authoritative guidance through Notice 2021-20, Notice 2021-23, and Notice 2021-24. Interaction with Paycheck Protection Program (PPP) LoansQuestion 49J. 700-20-01, on July 1, 2021, to obtain proposals for the Third-Party Administration Services. Isabelle Farrar is an attorney in Ropes & Gray LLPs Boston office. The IRS gave much awaited clarification to employers eager for guidance on the ability to treat wages paid to majority owners (more than 50%) and their spouses as qualified. Prior IRS guidance regarding ERCs came via FAQs, which are non-binding and subject to change. 180.00 : . The IRS issued Notice 2021-49 Wednesday that includes guidance on the extension and modification of the employee retention credit (ERC) under Sec. Notice 2021-49 [PDF 189 KB] (34 pages) includes guidance for employers that pay qualified wages after June 30, 2021, and before January 1, 2022, and provides additional guidance on miscellaneous issues that apply to the employee retention credit in both 2020 and 2021. Under sections 7001 and 7003 of the FFCRA, employers with fewer than 500 employees that provide paid sick and family leave, up to specified limits, to employees unable to work or telework due to certain circumstances related to COVID-19 may claim tax credits. ;{gfiopx9&G;i&T3Hk7NPnLQ d~P? 9~v^P>x?)I4qNF'z$2e+|J Kxits+yXTh9R[Xv6rdZ\!1GGo:~Cvi~]f4ElY[!Mko&('-@ *SOL$kM=Mh:6nt;9Sh#DbW;o0J[AYP8SK The first 16 pages include the following sections: I. Notice 2021-23. Answers 56, 57, and 58 also contain information on interaction with the PPP. ), An eligible employer that received a PPP loan and did not claim the employee retention credit may file a Form 941-X for the relevant calendar quarters in which the employer paid qualified wages, but only for qualified wages for which no deemed election was made. %PDF-1.6 % . 02/11/2021: 02/11/2021 20:10:23: Download : 98: 32/2015-20: (The additional guidance referenced in Notice 2021-23 regarding penalty relief is covered by Notice 2021-24.). 117-2. Special Issues for Employees: Income and DeductionQuestion 59L. As originally enacted by theCoronavirus Aid, Relief, and Economic Security Act(CARES Act), the employee retention credit provides a refundable payroll credit for eligible employers, including tax-exempt organizations, whose business has been affected by the coronavirus (COVID-19) pandemic for qualified wages paid after March 12, 2020, and before January 1, 2021. In March 2021, the Treasury Department issued Notice 2021-20 and Notice 2021-23, providing formal guidance relating to Employee Retention Credits (ERCs), replacing pre-existing FAQs first issued in May 2020 and updated periodically, with the last update having been made January 2021. Pursuant to the Notice, the same rules under the Gross Receipts Test per Notices 2021-20 and 2021-23 apply for purposes of determining whether an employer is an SFDE, to include: Lastly, the Notice makes clear that full-time equivalent (FTE) employees are not included when determining whether an employer is large or small, but wages paid to FTEs can be qualified, and the election to use the gross receipts from the previous quarter to determine eligibility in 2021 is not irrevocable. Accordingly, Corporation B may not treat as qualified wages any wages paid to Individual G because Individual G is a related individual for purposes of the employee retention credit. An RSB is an employer: Pursuant to the Notice, for purposes of determining whether the first requirement is met, an RSB is not deemed to have begun a trade or business until such time as the business has begun to function as a going concern and performed those activities for which it was organized. Additionally, the Notice clarifies that tax-exempt entities can be eligible as RSBs, the RSB determination is made on a quarterly basis (regarding whether the employer is otherwise eligible under the Gross Receipts or Suspension Tests), and the aggregation rules that otherwise apply to the ERC apply when making that determination. Notice 2021-20, released on March 1, 2021, provided guidance on qualified wages paid in 2020. When read together, Notice 2021-20 and Notice 2021-23 providedemployers with information to assist in evaluating eligibility for the employee retention credit, in determining qualified wages, and for claiming the employee retention credit for 2020 and for the first two quarters of 2021. One change under the ARPA rules for the ERC under Sec. A related IRS release-2021. Notice 2021-23 . 448(c)(3) for their calculation if the entity has not been in existence for three years and by reference to the entitys predecessor). The Notice provides that Treasury and the IRS will continue to monitor potential legislation related to the ERC that may impact certain rules it covers. Specifically, the Notice addresses changes made to the ERC by the American Rescue Plan Act of 2021 (ARPA). Notice 2021-20 provides some new guidance, and makes official some of the guidance provided under the FAQs, clarifying the FAQs in a way generally consistent with the previously published FAQs. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments. It appears that such amounts must be included in gross receipts. The employer does not reduce its deduction for its share of Social Security and Medicare taxes by any portion of the credit. Paul Bonner (Paul.Bonner@aicpa-cima.com) is a JofA senior editor. Individual G has the relationship to Individual H described in section 152(d)(2)(C) of the Code. the ACCEPT button if you understand and accept the foregoing statement and wish 116-136, and amended by the Consolidated Appropriations Act, 2021, P.L. D. Full or Partial Suspension of Trade or Business Operations. U{? a"v)C-Y1[S~s-. 340.00 : Athletics & Recreation . 116-260, will continue to apply to the third and fourth calendar quarters of 2021. Copies of any completed Forms 7200 that the employer submitted to the IRS. Pursuant to Notice 2021-20, an employer that received a PPP loan may now claim ERCs for any qualified wages paid to employees by an eligible employer that otherwise meets the requirements for the credit. In the film, an FBI agent reluctantly teams up with a renowned art robber in order to catch an even . When read together, Notice 2021-20 and Notice 2021-23 provided employers with information to assist in evaluating eligibility for the employee retention credit, in determining qualified wages, and for claiming the employee retention credit for 2020 and for the first two quarters of 2021. The Notice provides the deduction must be disallowed in the tax year during which the qualified wages giving rise to the credit were paid or incurred. Small employersthose with 500 or fewer full-time employeesmay claim advance payment of ERTCs to which they are entitled by filing Form 7200, Advance of Employer Credits Due to COVID-19, but such advances are not available to large employers (i.e., those with greater than 500 full-time employees) in the first two calendar quarters of 2021 like they were in 2020. Election not to Take Certain Wages into Account and Coordination with PPP Loan IIE. window.dataLayer = window.dataLayer || []; Regulations & Guidance IIH. ] (Answer 16. Accordingly, wages paid by Corporation C to Individual J and Individual K in the first calendar quarter of 2021 may be treated as qualified wages if the amounts satisfy the other requirements to be treated as qualified wages. On the whole, the additional insight is largely consistent with prior guidance issued by the IRS. Section II.A. For more detail about the structure of the KPMG global organization please visit https://kpmg.com/governance. Deferral Under Section 2302 of the CARES Act II-I. For the first two quarters of 2021, employers are eligible for the ERC for one or both quarters (determined separately) that their gross receipts are less than 80% of their gross receipts for the same calendar quarter in 2019. A related IRS releaseIR-2021-165 (August 4, 2021)briefly explains that Notice 2021-49 addresses changes made by the American Rescue Plan Act of 2021 to the employee retention credit. These changesapplicable to the third and fourth quarters of 2021include . Timing of qualified wages deduction disallowance. It incorporated most of the FAQs from the IRS website and addressed the retroactive ERC amendments made by Section 206 of the Disaster Relief Act. Edward Buchholzis a member of Thompson Coburn LLPs Tax Group. The ARPA additionally provides that for Q3 and Q4 an employer whose gross receipts declined more than 90% from the corresponding quarter in 2019 is a Severely Financially Distressed Employer (SFDE). <>/ExtGState<>/ProcSet[/PDF/Text/ImageB/ImageC/ImageI] >>/MediaBox[ 0 0 612 792] /Contents 4 0 R/Group<>/Tabs/S/StructParents 0>> gtag('js', new Date()); it in a good faith effort to retain us, and, further, even if you consider it confidential, Notice 2021-20 provides new guidance regarding PPP loans and substantiation requirements, and clarifies previously issued FAQs in a way generally consistent with the prior FAQs by: The 2020 ERCs are a fully refundable tax credit equal to 50% of qualified wages paid to employees by eligible employers. For the 2020 ERCs, qualified wages are capped at $10,000 per employee, and, subject to exceptions, eligible employers are employers that either fully or partially suspended operations due to orders from an appropriate governmental authority related to Covid-19 or experienced a significant decline in gross receipts of 50% or more during a specified period. Individual G is an employee of Corporation B, but Individual H is not. When read together, Notice 2021-20 and Notice 2021-23 provided employers with information to assist in evaluating eligibility for the employee retention credit, in determining qualified wages, and for claiming the employee retention credit for 2020 and for the first two quarters of 2021. Notice 2021-20 provides new guidance by providing a non-exhaustive list of factors that can be considered in determining if an employers modifications to operations allow the business to operate in a comparable manner: the employers telework capabilities; the portability of employees work; the need for presence in employees physical work space; and delays caused by transitioning to telework operations. 3134(c)(3)(A)(ii)(II) as if it applies to recovery startup businesses. DETAIL. A non-exhaustive list of modifications include limiting occupancy to provide for social distancing, requiring appointments for service instead of walk-in service, changing the format of service, and requiring employees and customers to wear face coverings. In general, any amount of payroll costs included on the PPP loan forgiveness application that are not needed for loan forgiveness can be used as ERC Qualified Wages by an ERC Eligible Employer (i.e., one satisfying either the government mandate or the significant decline in gross receipts test). Clarifications on unanswered questions for 2020 and 2021 ERTC Todays notice amplifies guidance about the employee retention credit as previously provided by the IRS in Notice 2021-20 and Notice 2021-23 (read TaxNewsFlash and TaxNewsFlash, respectively). Governmental entities that were excluded from claiming the ERC under the CARES Act (i.e., educational institutions or entities whose principal purpose is medical or hospital care) should review the clarifications provided by Notice 2021-23 to determine if they qualify for the ERC under Section 207 of the Disaster Relief Act. L. No. This is the second of published guidance from the IRS on the ERC (third if you count the initial IRS website FAQs) and yet more guidance is expected. Notice 2021-23 explains that additional guidance will be published regarding the ARPA ERCs. Also, the notice states that although Sec. %PDF-1.7 ), Notice 2021-20 formalizes previously issued guidance that had explained that a business whose workplace was closed by government orders was not considered suspended if it could continue operations comparable to its operations prior to the closure[. Notice 2021-20 makes official most of the guidance previously provided by the FAQs regarding when operations are considered partially suspended. No part of this document may be reproduced, retransmitted or otherwise redistributed in any form or by any means, electronic or mechanical, including by photocopying, facsimile transmission, recording, rekeying, or using any information storage and retrieval system, without written permission from Ernst & Young LLP. KPMG International Limited is a private English company limited by guarantee and does not provide services to clients. transmit to us. EY US Tax News Update Master Agreement | EY Privacy Statement. Notification on POSM Supply During Chinese New Year. Employers claiming ERTCs may reduce their required employment tax deposits for the first two calendar quarters of 2021 to access ERTCs for which they are eligible. Notice 2021-23 also provides rules allowing small eligible employers to receive advance payments of their ERC under certain circumstances. The employer is deemed to make the election for any qualified wages included in the amount of payroll costs on the PPP Loan Forgiveness Application. 199 0 obj <> endobj The IRS has finally issued formal guidance regarding employee retention credits aligned with Congressional intent in various legislative pandemic relief packages. 2020-12-15 12:15. 3134 is that, for the third and fourth quarters of 2021, eligible employers claim the credit against the employers share of Medicare tax (or equivalent portion of Tier 1 tax under the Railroad Retirement Tax Act) rather than, as previously, against the employers share of Social Security tax (or its equivalent Railroad Retirement Tax Act portion). For example, an employer could elect to be a Q2 2021 eligible employer if its Q1 2021 gross receipts are less than 80% of its Q1 2019 gross receipts. Employers do not have to make any formal elections to calculate their gross receipts declines under the alternative method available to them, and they can continue accessing the credit by reducing their employment tax deposits or seeking refunds on an original or amended employment tax return. Despite the extension of the ERTC through the third and fourth quarters of 2021 under the American Rescue Plan Act of 2021 (the Rescue Plan Act), Notice 2021-23 does not apply to ERTCs for wages paid during the third and fourth quarters of 2021, and the IRS will issue further guidance for such periods. On March 1, 2021, the IRS issued much anticipated guidance related to the Employee Retention Credit (ERC) in Notice 2021-20 . }@1(La %LY Before addressing the guidance contained within the Notice, its important to note that the Senate, as a means of funding the bipartisan infrastructure bill (see our previous tax alert, Bipartisan infrastructure bill moves forward), has proposed ending the employee retention credit (ERC) program three months early (i.e., eliminating the credit for the fourth quarter of 2021). 2023. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. A recovery startup business is an employer that (1) is not otherwise an eligible employer under conditions (1) or (2) of the preceding sentence; that (2) began carrying on a trade or business after Feb. 15, 2020; (3) with average annual gross receipts for the three tax years preceding the quarter in which it claims the credit of no more than $1 million (with rules under Sec. Build a Morning News Digest: Easy, Custom Content, Free! information as confidential. In March 2021, the Treasury Department issued Notice 2021-20 and Notice 2021-23, providing formal guidance relating to Employee Retention Credits (ERCs), replacing pre-existing FAQs first issued in May 2020 and updated periodically, with the last update having been made January 2021. [Event Overview] - When to enter: 20:00 to 20:30, Saturday, August 7, 2021 (KST) - Eligibility: CARAT Membership holders - Number of winners: 200 . endobj endstream endobj startxref Under the Taxpayer Certainty and Disaster Tax Relief Act of 2020 (Relief Act), Congress retroactively made changes to the ERC, as we previously discussed. A taxpayer becomes an Eligible Employer if the trade or business suspended constitutes more than a nominal portion of business operations. Eligible employers may now claim ERTCs equal to 70% of qualified wages paid to an employee. Aggregation Rules IIF. Thompson Coburn LLP continues to monitor these important developments in the CARES Act and other Federal relief efforts. Please try again later. hbbd``b`$. The IRS in early March 2021 issued Notice 2021-20 to formalize and clarify previously issued information contained in a set of frequently asked questions (FAQs) available on the IRS website with respect to the employee retention credit for the 2020 calendar year. The IRS said it will issue further guidance on applying Section 9651 of the American Rescue Plan Act of 2021 (ARPA), which extends the ERC to qualified wages paid in the last two quarters of 2021. 2023 Baker Tilly US, LLP, Devin Tenney, Michael Wronsky, Paul Dillon and Christine Faris, Employee retention credit (ERC) solutions, Bipartisan infrastructure bill moves forward. has more than a nominal effect. (Answer 17 (referencing Answer 18).). The ARPA created a new class of eligible employers for Q3 and Q4 of 2021, Recovery Startup Businesses (RSB). Association of International Certified Professional Accountants. endobj The IRS issued Notice 2021-49 Wednesday that includes guidance on the extension and modification of the employee retention credit (ERC) under Sec. The key exception to this is the hours lookback rule applicable to large employers set forth in Notice 2021-20. 2019-09-12 18:59. IRS notices are published in the Internal Revenue Bulletin and constitute authority for penalty defense purposes. We will continue to monitor updates and issue additional communications as new information becomes available. Notice 2021-23 indicates that an employer must keep documentation of its decline in receipts. 3134 (e) and Section 2301 (e) of the CARES Act, an employer's deduction for qualified wages, including qualified health plan expenses, is reduced by the amount of the employee retention credit. The maximum credit available for each employee is $5,000 in 2020. Notice 2021-20 also provides new guidance regarding substantiation requirements. This quick guide walks you through the process of adding the Journal of Accountancy as a favorite news source in the News app from Apple. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The new guidance amplifies Notice 2021-20 (see Tax Alert 2021-0513) by incorporating the changes made by Section 207 of the Taxpayer Certainty and Disaster Tax Relief Act of 2020 (Disaster Relief Act), which apply on a prospective basis for qualified wages paid in the first two quarters of 2021.
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