The IRS has issued new guidance on new changes for part of 2021 to the Employee Retention Credit (ERTC).
The ERTC was enacted as part of the Coronavirus, Aid, Relief, and Economic Security (CARES) Act last year and offers tax credits from 50 to 70 percent of qualifying wages paid to employees during the pandemic.
The refundable credit is now available to both public and private institutions whose operations were fully or partially suspended due to a COVID-19-related shut-down order or whose gross receipts declined by more than 50 percent when compared to the same quarter in the prior year. Employers who receive Paycheck Protection Program (PPP) loans may still qualify for the ERTC with respect to wages that are not paid for with forgiven PPP proceeds.
Building on guidance released last month addressing the ERTC amounts employers could claim for wages paid in 2020, the IRS has released Notice 2021-23 to explain the changes to the ERTC for the first two calendar-year quarters of 2021, including:
- The increase in the maximum credit amount
- The expansion of the category of employers that may be eligible to claim the credit
- Modifications to the gross receipts test
- Revisions to the definition of qualified wages
- New restrictions on the ability of eligible employers to request an advance payment of the credit
New for 2021
As a result of the changes made by the relief package enacted in December 2020, eligible employers can now claim a refundable tax credit against the employer share of Social Security tax equal to 70 percent of the qualified wages they paid to employees after December 31, 2020, and will pay through June 30, 2021. Qualified wages are limited to $10,000 per employee per calendar quarter in 2021. Thus, the maximum employee retention credit available is $7,000 per employee per calendar quarter, for a total of $14,000 for the first two calendar quarters of 2021.
Employers, including colleges and universities, can access the ERTC for the first and second quarters of 2021 prior to filing their employment tax returns by reducing employment tax deposits. Small institutions (with an average of 500 or fewer full-time employees in 2019) may request advance payment of the credit on Form 7200, Advance of Employer Credits Due to Covid-19, after reducing their deposits.
Under the most COVID-19 relief legislation, the American Rescue Plan Act of 2021 enacted on March 11, 2021, the ERTC was extended to eligible employers for wages paid during the third and fourth quarters of 2021. Additional guidance is expected from the IRS implementing this extension.
Find other information from NACUBO about COVID-19 employer and tax relief here.