Under the ERC as originally enacted, the credit was 50% of qualified wages (including qualified health plan expenses), up to $10,000 in wages for all quarters in 2020. Notice 2021-23 indicates that an employer must keep documentation of its decline in receipts.įor the first two quarters of 2021, the maximum per-employee qualified wages that may be taken into account increase to $10,000 per quarter. Employers that did not exist in the same quarter in 2019 must use the corresponding quarter in 2020 as the benchmark quarter. An employer makes this election to qualify using the prior quarter by claiming the credit on this basis. 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. Alternatively, for each of the first two quarters of 2021, employers may elect to compare gross receipts for the prior quarter to the corresponding calendar quarter in 2019. 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. Notice 2021-23 also clarifies the gross receipts test that employers may use to qualify for the ERC. These modifications allow remuneration paid by governmental employers to constitute qualified wages for the ERC, notwithstanding that the remuneration may not constitute wages for purposes of IRC Section 3121. In addition, Notice 2021-23 acknowledges ARPA's statutory modification to the definition of wages to disregard certain exclusions from "employment" under IRC Section 3121. Section 1.170A-9(c)(1) that is a college or university or (2) an entity that has the principal purpose or function of providing medical or hospital care within the meaning of IRC Section 170(b)(1)(A)(iii) and Treas. Notice 2021-23 clarifies that this exception applies to governmental entities classified as (1) an educational organization as defined in IRC Section 170(b)(1)(A)(ii) and Treas. For the first two quarters of 2021, however, Section 207 of the Disaster Relief Act includes an exception for tax-exempt public colleges, universities and hospitals that are described in IRC Section 501(c)(1). The CARES Act excluded governmental employers from eligibility for the ERC. 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. Notice 2021-23 incorporates the changes made by Section 207 of the Disaster Relief Act and applies to qualified wages paid in the first two quarters of 2021. 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. Notice 2021-20, released on March 1, 2021, provided guidance on qualified wages paid in 2020. Certain changes were retroactive to enactment of the CARES Act, but most apply only to wages paid from Januthrough J(see Tax Alert 2021-0019). Sections 206 and 207 of the Disaster Relief Act extended and broadened the expiring ERC. On December 27, 2020, the Consolidated Appropriations Act, 2021 was enacted, which included the Disaster Relief Act. Certain FAQs were later modified, and new FAQs were added over time. On April 29, 2020, the IRS posted over 90 ERC FAQs on its website. The ERC is a refundable employment tax credit for eligible employers paying qualified wages (including qualified health plan expenses). The ERC was enacted on March 27, 2020, as part of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) for wages paid from Mathrough December 31, 2020, by employers that (1) were fully or partially suspended due to COVID-19-related governmental orders or (2) experienced a more than 50% decline in gross receipts for the calendar quarter as compared to the same calendar quarter in 2019 (see Tax Alert 2020-0761). 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. In Notice 2021-23, the IRS released guidance on the employee retention credit (ERC) for the first two quarters of 2021. IRS issues guidance on employee retention credit for 2021
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