The Internal Revenue Service this week issued guidance for employers claiming the employee retention credit for 2020 calendar quarters.
The guidance in Notice 2021-20 includes clarifications on the retroactive changes under the Relief Act 2020 applicable to 2020 wages.
Quick Review of ERC 2020
For 2020, the credit can be claimed by employers who paid qualified wages from March 12, 2020 to December 31, 2020.
To qualify, they must:
- Have experienced full or partial suspension in their business operations due to government restrictions or regulations, OR
- Have significant decline in gross receipts
Eligible employers get a credit equal to 50 percent of qualified wages paid (including qualified health plan expenses), up to $10,000 per employee in 2020.
Overview of New Guidance
The 102-page document offers detailed explanation on the following 2020 ERC topics:
- Eligible Employers
- Aggregation Rules
- Governmental Orders
- Full or Partial Suspension of Trade or Business Operations
- Significant Decline in Gross Receipts
- Maximum Amount of Employer’s Employee Retention Credit
- Qualified Wages
- Allocable Qualified Health Plan Expenses
- Interaction with Paycheck Protection Program (PPP) Loans
- Claiming the Employee Retention Credit
- Special Issues for Employees: Income and Deduction
- Special Issues for Employers: Income and Deduction
- Special Issues for Employers: Use of Third-Party Payers
- Substantiation Requirements
With this release, CPAs and tax professionals will have more clarity on the interaction of PPP and ERC.
More specifically on Question 49, the guidance answered that the minimum amount of payroll needed to qualify for forgiveness is deemed to have been elected to be used for the PPP forgiveness application given that other eligible costs are included on the forgiveness
application. Therefore, if no other eligible expenses are put on the application, then all payroll expenses needed to qualify for PPP forgiveness are elected for the PPP and are ineligible for the ERC.
If the PPP loan, however, is not fully forgiven, then the payroll expenses may be eligible for the credit.
If you have more questions about the ERC guidelines and in claiming your ERC, please feel free to contact us at https://levineandassoc.com/contact-us/ book a free consultation here: