Tax Alert 2021-1
/The Internal Revenue Service issued guidance in Notice 2021-20 yesterday for employers claiming the employee retention credit under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), as modified by the Taxpayer Certainty and Disaster Tax Relief Act of 2020 (Relief Act), for calendar quarters in 2020.
The guidance in Notice 2021-20 PDF is similar to the information in the employee retention credit FAQs but includes clarifications and describes retroactive changes under the new law applicable to 2020, primarily relating to expanded eligibility for the credit.
For 2020, the employee retention credit can be claimed by employers who paid qualified wages after March 12, 2020, and before January 1, 2021 who experienced a full or partial suspension of their operations or a significant decline in gross receipts.
The credit is equal to 50 percent of qualified wages paid, including qualified health plan expenses,
for up to $10,000 per employee in 2020.
The maximum credit available for each employee is $5,000 in 2020.
A significant change for 2020 made by the Relief Act permits eligible employers that received a Paycheck Protection Program (PPP) loan to claim the employee retention credit, although the same wages cannot be counted both for seeking forgiveness of the PPP loan and calculating the employee retention credit.
Notice 2021-20 also provides answers to various related questions of the credit and the application of credit from eligibility through the calculation of the credit as well as how to claim and substantiate the credit.
While the Relief Act also extended and modified the employee retention credit for the first two calendar quarters in 2021, Notice 2021-20 PDF addresses only the rules applicable to 2020. The IRS plans to release additional guidance soon addressing the changes for 2021.
Please contact us to discuss the ramifications and potential application of this credit to your business.
