IRS Guidance on the Employee Retention Credit
The IRS has released new guidance on claiming the Employee Retention Credit (ERC) under the CARES Act and Relief Act. The ERC is a credit against employment taxes intended to assist eligible businesses in retaining their employees.
Notice 2021-23 provides taxpayers with additional information needed to prepare credit claims, including updates to the ERC for the first two calendar quarters of 2021, such as an increased credit amount and broadened eligibility requirements.
For many struggling businesses, the ERC offers a much-needed lifeline during these uncertain times. With this new IRS guidance on The Employee Retention Credit, companies can better understand how to qualify for and claim this valuable credit.
ERC Overview
The IRS has issued additional guidance for claiming the employee retention credit (ERC) under the CARES Act and Relief Act. This credit is designed to help eligible businesses retain employees by offering a credit against employment taxes. Notice 2021-23 provides taxpayers with additional guidance when preparing credit claims.
Changes have been made to the ERC for the first two calendar quarters of 2021, including an increased credit amount of up to $14,000 per employee. Eligible employers may now claim a refundable tax credit against the employer share of social security tax. Broadened eligibility requirements are also in place for employers who suffered a 20% decline in quarterly gross receipts compared to the same calendar quarter in 2019.
Our Recommended ERTC Tax Expert
If you are unsure whether your business is eligible for ERTC or would prefer to work with an ERTC Tax Expert business who are a safe pair of hands we recommend the company below. Their ERC team is comprised of specialists experienced in ERTC applications, business incentives, tax credits, and payroll taxes. They can help companies identify qualified wages, substantiate and document them, and file those claims in a manner that minimizes business disruption. Their specialized expertise ensures compliance with evolving IRS guidance. Click on the image which will take your to their website where you can begin the process.
Changes to ERC
You can now claim a refundable tax credit against your employer’s share of social security tax, providing increased financial assistance to eligible businesses and allowing them to retain employees during the ongoing pandemic. 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.
This expanded eligibility provides broadened requirements for employers who suffered a 20% decline in quarterly gross receipts compared to the same calendar quarter in 2019. In addition, safe harbor rules are provided that allow employers to use prior quarter gross receipts compared to the same quarter in 2019 to determine eligibility. Employers not in existence in 2019 may compare their quarterly gross receipts from 2021 with those from 2020 quarters to determine eligibility.
These changes provide more flexibility for businesses affected by the pandemic and allow them to benefit from the employee retention credit. With these changes come new regulations that need expert advice and guidance.
Eligibility Requirements
If your business suffered a decline of at least 20% in quarterly gross receipts compared to the same quarter in 2019, you may be eligible for the employee retention credit. The CARES Act and Relief Act have broadened eligibility requirements for employers who are struggling to retain employees during these challenging times. Notice 2021-23 provides additional guidance for taxpayers looking to claim the ERC.
To determine eligibility, employers may use a safe harbor provision that allows them to compare prior quarter gross receipts with the same quarter in 2019. Employers not in existence in 2019 may compare their quarterly gross receipts from 2021 with those from 2020. Additionally, some government instrumentalities such as colleges, universities, hospitals and certain organizations chartered by Congress are now eligible for the ERC.
It is important for businesses to understand that changes have been made to the employee retention credit for the first two calendar quarters of 2021. These changes include an increased credit amount and a maximum employee retention credit of $7,000 per employee per calendar quarter, or $14,000 total for the first two quarters of this year.
Understanding these eligibility requirements can help businesses make a valid claim.
Qualified Wages
Don’t miss out on the opportunity to claim a valuable tax credit for wages paid to eligible employees during the first two quarters of 2021. In order to claim this Employee Retention Credit (ERC), employers must be aware of qualified wages.
Qualified wages are generally those paid from March 13, 2020, through December 31, 2021. For the first two quarters of 2021, eligible employers may now claim a refundable tax credit against the employer share of social security tax.
Qualified wages also include certain health plan expenses and may differ depending on the number of full-time employees an employer had in 2019. Employers with up to 500 full-time employees in 2019 may include all wages and health plan expenses as qualified wages. Additionally, employers with more than 500 full-time employees in 2019 may only count qualified wages for employees who were not providing services due to government orders related to COVID-19 or whose services were reduced because of decreased business.
It’s important for employers to properly identify and document qualified wages when claiming the ERC.
Bonuses and Essential Workers
Moving on to another important aspect of the employee retention credit, eligible employers may now claim the ERC for bonuses paid to essential workers. This is a significant change as it provides businesses with an opportunity to recognize and reward their employees who’ve been working tirelessly during these challenging times.
The credit amount for such bonuses is subject to certain limits and conditions, which are outlined in Notice 2021-23. To qualify for this credit, the bonuses must be paid after March 12, 2020, and before January 1, 2022.
Additionally, the bonus payments must be made to employees who perform essential services during the pandemic. These include healthcare workers, grocery store employees, transportation workers, and others who’ve been deemed critical by federal or state authorities.
As with other aspects of ERC eligibility requirements, it’s crucial that businesses keep accurate records of their bonus payments and supporting documentation.
Our Recommended ERTC Tax Expert
If you are unsure whether your business is eligible for ERTC or would prefer to work with an ERTC Tax Expert business who are a safe pair of hands we recommend the company below. Their ERC team is comprised of specialists experienced in ERTC applications, business incentives, tax credits, and payroll taxes. They can help companies identify qualified wages, substantiate and document them, and file those claims in a manner that minimizes business disruption. Their specialized expertise ensures compliance with evolving IRS guidance. Click on the image which will take your to their website where you can begin the process.
Conclusion
In conclusion, the IRS has issued guidance for claiming the Employee Retention Credit (ERC) under the CARES Act and Relief Act.
This credit is designed to assist eligible businesses in retaining employees by offering a credit against employment taxes.
The Notice 2021-23 provides taxpayers with additional information on preparing credit claims, including changes to the ERC for the first two calendar quarters of 2021.
The changes include an increased credit amount and broadened eligibility requirements.
