In the past, we have stressed the importance of taking advantage of the Employee Retention Credit (ERC), which was created by the Coronavirus Aid, Relief and Economic Security (CARES) Act and signed into law in March 2020, to encourage businesses to keep employees on their payroll. But since being implemented, there are several updates employers need to keep on their radar. Read on to learn about new IRS guidance that could mean bigger cost savings for you and your team.
To take full advantage of this opportunity, you need to understand the new ERC guidance the IRS released on August 4, 2021. Notice 2021-49 addresses changes made by the American Rescue Plan Act (ARPA) to the ERC that are applicable to the third and fourth quarters of 2021, including:
- 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”
- Providing that the employee retention credit does not apply to qualified wages taken into account 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 ARPA
The new guidance also responds to frequently asked ERC questions, 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.
- Whether wages paid to majority owners and their spouses may be treated as qualified wages.
Eligible employers will report their total qualified wages and the related health insurance costs for each quarter on their employment tax returns. If a reduction in the employer’s employment tax deposits is not sufficient to cover the credit, certain employers may receive an advance payment from the IRS by submitting Form 7200, Advance Payment of Employer Credits Due to COVID-19.
On the horizon:
Earlier this month, the Senate passed its bipartisan infrastructure plan H.R. 3684, (the Infrastructure Investment and Jobs Act) by a vote of 69–30 which now goes to the House of Representatives for consideration. While this is a hugely historic piece of legislation that we suggest you follow separately, it’s crucial to note that the infrastructure bill would end the employee retention credit (ERC) early, making wages paid after Sept. 30, 2021 ineligible for the credit. The IRS and the Treasury said they’re closely monitoring the pending legislation related to the ERC and will provide additional information as needed. As a best practice, we suggest watching this legislative development closely in the coming days and weeks. Frequently asked questions and updates on the employee retention credit, tax credits for required paid leave and other items can be found on the coronavirus page of IRS.gov. Still need guidance to navigate the ERC? Contact our team of professionals today to set up a consultative conversation.