In general, any amount of payroll costs included on the PPP loan forgiveness application that are not needed for loan forgiveness can be used as ERC Qualified Wages by an ERC Eligible Employer (i.e., one satisfying either the government mandate or the significant decline in gross receipts test). According to lan Redpath and Greg Urban, Notice 2021-20 and Notice 2021-23 do not apply to which of the following time periods? ), An eligible employer that received a PPP loan and did not claim the employee retention credit may file a Form 941-X for the relevant calendar quarters in which the employer paid qualified wages, but only for qualified wages for which no deemed election was made. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. Notice 2021-20 provides new guidance regarding PPP loans and substantiation requirements, and clarifies previously issued FAQs in a way generally consistent with the prior FAQs by: The 2020 ERCs are a fully refundable tax credit equal to 50% of qualified wages paid to employees by eligible employers. For the 2020 ERCs, qualified wages are capped at $10,000 per employee, and, subject to exceptions, eligible employers are employers that either fully or partially suspended operations due to orders from an appropriate governmental authority related to Covid-19 or experienced a significant decline in gross receipts of 50% or more during a specified period. To celebrate the release of SEVENTEEN 2021 CARAT LAND, we've prepared a special event just for CARAT. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. <>/ExtGState<>/ProcSet[/PDF/Text/ImageB/ImageC/ImageI] >>/MediaBox[ 0 0 612 792] /Contents 4 0 R/Group<>/Tabs/S/StructParents 0>> Notice 2021-20 also provides new guidance regarding substantiation requirements. As a result, employers may claim the ERC for that portion of wages. endobj To contribute, please contact us at TaxInsights@bloombergindustry.com. Copies of any completed Forms 7200 that the employer submitted to the IRS. 2 0 obj Copyright 1996 2023, Ernst & Young LLP. 145 0 obj <>stream You don't need to read the first 16 pages, however, there are some definitions to terms that show up throughout the 102 page notice that might be helpful. in a matter where that information could and will be used against you. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Before addressing the guidance contained within the Notice, its important to note that the Senate, as a means of funding the bipartisan infrastructure bill (see our previous tax alert, Bipartisan infrastructure bill moves forward), has proposed ending the employee retention credit (ERC) program three months early (i.e., eliminating the credit for the fourth quarter of 2021). Allocable Qualified Health Plan ExpensesQuestions 40-48I. The rules for determining qualified wages provided in Section III.G. Question 29. Section 2301 of the CARES Act allows a credit (employee retention credit or credit) against applicable employment taxes for eligible employers, including tax-exempt organizations, that pay qualified wages, including certain health plan expenses, to some or all employees after March 12, 2020, and before January 1, 2021. in December 2020, but class started in January 2021, this payment would show on the 2021 T2202 form. Claiming the Employee Retention CreditQuestion 50-58K. The employee retention credit does not apply to the qualified wages for which the election or deemed election is made. (Answer 70.) When read together, Notice 2021-20 and Notice 2021-23 provided employers with information to assist in evaluating eligibility for the employee retention credit, in determining qualified wages, and for claiming the employee retention credit for 2020 and for the first two quarters of 2021. The Notice provides the deduction must be disallowed in the tax year during which the qualified wages giving rise to the credit were paid or incurred. Notice 2021-20 provides that the employer will have adequately substantiated eligibility for ERCs if the employer retains records that include the information listed below. It incorporated most of the FAQs from the IRS website and addressed the retroactive ERC amendments made by Section 206 of the Disaster Relief Act. 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 a Form 7200, Advance Payment of Employer Credits Due to COVID-19. The IRS gave much awaited clarification to employers eager for guidance on the ability to treat wages paid to majority owners (more than 50%) and their spouses as qualified. On the whole, the additional insight is largely consistent with prior guidance issued by the IRS. Baker Tilly US, LLP, trading as Baker Tilly, is a member of the global network of Baker Tilly International Ltd., the members of which are separate and independent legal entities. To embed, copy and paste the code into your website or blog: Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra: [Ongoing] Read Latest COVID-19 Guidance, All Aspects, [Hot Topic] Environmental, Social & Governance. 5 Additional changes to the ERC were made under section 9651 of the American Rescue Plan Act of 2021 ("ARP Act"), Pub. Notice 2021-20 provides a new safe harbor for what is to be considered more than [] nominal: if the gross receipts from that portion of the business operations is not less than 10% of the total gross receipts (both determined using the gross receipts of the same calendar quarter in 2019), or if the hours of service performed by employees in that portion of the business is not less than 10% of the total number of hours of service performed by all employees in the employers business (both determined using the number of hours of service performed by employees in the same calendar quarter in 2019). The notice has 71 questions and answers providing guidance and including some examples illustrating the rules under the employee retention credit. The Notice states that a government order resulting in a 10 percent or more reduction in the employers ability to provide its goods or services will be deemed to have more than a nominal effect on the employers operations. Reg. According to a related IRS releaseIR-2021-48 (March 1, 2021)the guidance in Notice 2021-20 is similar to the information in the prior FAQs under the employee retention credit, but includes clarifications and describes retroactive changes applicable to 2020, primarily relating to expanded eligibility for the credit. For entities other than tax-exempt organizations, this would include tax-exempt income. These changesapplicable to the third and fourth quarters of 2021include provisions: Notice 2021-49 also provides guidance on several miscellaneous issues with respect to the employee retention credit for both 2020 and 2021. 3134(c)(3)(A)(ii)(II) as if it applies to recovery startup businesses. The IRS explained in IR-2021-48 that for 2020, the employee retention credit can be claimed by employers that paid qualified wages after March 12, 2020, and before January 1, 2021, and that experienced a full or partial suspension of their operations or a significant decline in gross receipts. Other Rules Related to the ERC IIG. The need for presence in the employees' physical workspace. Notice 2021-20 provides general rules and seven examples showing how to determine the portion of ERC-eligible wages based on the amount claimed as payroll costs on the employer's loan forgiveness application. However, Notice 2021-20 only applied to ERTCs claimed for wages paid in 2020 despite extension of the ERTC program through June 30, 2021, under the Relief Act. Notice 2021-20 provides further clarity to the previously issued FAQs by including a safe harbor for when a partial suspension constitutes more than a nominal portion of business operations (Answer 11), providing a non-exhaustive list of factors to consider when evaluating whether a business is able to continue its operations in a comparable manner (Answer 16), and providing a safe harbor and guidance regarding when a modification of operations constitutes a partial suspension (Answer 18. The maximum credit available for each employee is $5,000 in 2020. The purpose of this report is to provide text of Notice 2021-49. Also, the notice states that although Sec. PURPOSE. The House, however, is on recess until Sept. 20, 2021, creating a narrow window for Congress to eliminate the ERC for the fourth quarter of 2021 (without making the change retroactive). In March and April 2021, the IRS provided employers with more authoritative guidance through Notice 2021-20, Notice 2021-23, and Notice 2021-24. Pursuant to Notice 2021-20, an employer that received a PPP loan may now claim ERCs for any qualified wages paid to employees by an eligible employer that otherwise meets the requirements for the credit. The Agreement awarded through this RFP process will replace the current Third-Party administrator service Agreement for the Savings Plus Program (Savings Plus . The IRS has finally issued formal guidance regarding employee retention credits aligned with Congressional intent in various legislative pandemic relief packages. The CAA allows employers that previously received a PPP loan to be retroactively eligible for 2020 ERCs. 2023 KPMG LLP, a Delaware limited liability partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. hb```E CAXKi@,B?y3t1T3''YN6``T:*#"Ou. window.dataLayer = window.dataLayer || []; Qualified wages are capped at $10,000 per employee per calendar quarter in 2021, meaning the maximum ERTC available per employee is $7,000 per quarter, and $14,000 in the aggregate for the first two calendar quarters of 2021. Interaction with Paycheck Protection Program (PPP) LoansQuestion 49J. Special Issues for Employees: Income and DeductionQuestion 59L. That is not otherwise eligible under the Gross Receipts or Suspension Tests. The ERC was enacted on March 27, 2020, as part of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) for wages paid from March 13, 2020 through December 31, 2020, by employers that (1) were fully or partially suspended due to COVID-19-related governmental orders or (2) experienced a more than 50% decline in gross receipts for the calendar quarter as compared to the same calendar quarter in 2019 (see Tax Alert 2020-0761). Aggregation RulesQuestions 7-9C. ), Notice 2021-20 provides new guidance by explaining that the only modifications to be considered when evaluating whether there is a more than nominal impact on business operations are those required by a governmental order as a condition of reopening a physical space. Alipay Portal Help Center Upgrade Notice. A related IRS release-2021. Notice 2021-23. %PDF-1.6 % In specific circumstances, the services of a professional should be sought. The IRS today released an advance version of Notice 2021-49 providing additional guidance regarding the employee retention credit. Clarifications for All Periods. In March, the IRS issued Notice 2021-20, to address changes made to the ERTC by Section 206 of the Disaster Tax Relief Act. 20.00 : Health Insurance . 3121(a) or compensation under Sec. Initially, the CARES Act prevented any business receiving an SBA Loan under the PPP from claiming ERCs. Revenue Procedure 2021-23 applies to wages paid after March 12, 2020 and before . That is, the maximum per-employee credit for all of 2020 was $5,000 whereas the maximum per-employee credit for the first half of 2021 is $14,000. <> By using the site, you consent to the placement of these cookies. We encourage you to reach out to your Baker Tilly advisor regarding how any of the above may impact your situation. 700-20-01, on July 1, 2021, to obtain proposals for the Third-Party Administration Services. For the first two quarters of 2021, employers are eligible for the ERC for one or both quarters (determined separately) that their gross receipts are less than 80% of their gross receipts for the same calendar quarter in 2019. 209 0 obj <>stream Governmental OrdersQuestion 10D. 3 . IRS clarifies legislative changes to the employee retention tax credit, Supreme Court rules section 363(m) limitations on bankruptcy sale appeals not jurisdictional, [Webinar] EEO Implications of Dobbs - April 26th, 2:00 pm - 3:00 pm CDT, [Webinar] Liens from Deferred Estate Tax; Grantor Trusts & Basis Step-Up; Gifts of Business Interests - April 24th, 12:00 pm - 1:30 pm CDT, ED further delays third-party servicer guidance, clarifies significant policies. (Answer 11. An eligible employer is an employer carrying on a trade or business (1) whose trade or businesss operation is fully or partially suspended due to orders from a governmental authority limiting commerce, travel, or group meetings due to COVID-19; (2) that experiences a decline in gross receipts (as defined in Notices 2021-20 and 2021-23); or (3) is a recovery startup business. These changesapplicable to the third and fourth quarters of 2021include . Answers 56, 57, and 58 also contain information on interaction with the PPP. IRS notices are published in the Internal Revenue Bulletin and constitute authority for penalty defense purposes. In March 2021, the Treasury Department issued Notice 2021-20 and Notice 2021-23, providing formal guidance relating to Employee Retention Credits (ERCs), replacing pre-existing FAQs first issued in May 2020 and updated periodically, with the last update having been made January 2021. #F JRI]*-9v#jhi@0>y"wS^ } ^#ReK)9g45Z--kf&I+cZc\=Ig,: Og49 transmit to us. Today's notice expands on guidance previously provided in Notice 2021-20, which addressed the employee retention credit claimed for the 2020 calendar year. There was a problem submitting your feedback. That began operating a trade or business after Feb. 15, 2020. An order that results in a reduction in an employers ability to provide goods or services in the normal course of the employers business by 10% or more is deemed to have more than a nominal effect on business operations. 922, which provides guidance on the employee retention credit under section 2301 of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), Pub. This notice amplifies Notice 2021-20 by providing additional guidance on section 2301 of the CARES Act and addressing the amendments made by section 207 of the Relief Act, applicable to the first and second calendar quarters of 2021. Employers claiming ERTCs may reduce their required employment tax deposits for the first two calendar quarters of 2021 to access ERTCs for which they are eligible. Alternatively, for each of the first two quarters of 2021, employers may elect to compare gross receipts for the prior quarter to the corresponding calendar quarter in 2019. 3134 (e) and Section 2301 (e) of the CARES Act, an employer's deduction for qualified wages, including qualified health plan expenses, is reduced by the amount of the employee retention credit. On Aug. 4, 2021, the IRS released Notice 2021-49 (Notice), which amplifies both Notice 2021-20 and Notice 2021-23 by providing additional guidance on the employee retention credit (ERC), applicable to the third and fourth calendar quarters of 2021. Definition of "Qualified Wages"IID. On the other hand, the IRS takes the position that FAQs are non-binding and cannot be relied on as authority for defending penalties under Treas. EY US Tax News Update Master Agreement | EY Privacy Statement. Notice 2021-20 provides new guidance implementing changes made by the Consolidated Appropriations Act (CAA) to allow employers that previously received a Paycheck Protection Program (PPP) loan to be retroactively eligible for 2020 ERCs. While other legislation allowed businesses receiving SBA Loans under the PPP to obtain other relief, such businesses remained ineligible to claim ERCs until the CAA was passed in December 2020. Red Notice is a 2021 American action comedy film written and directed by Rawson Marshall Thurber starring Dwayne Johnson alongside Ryan Reynolds and Gal Gadot and Ritu Arya.It marks the third collaboration between Thurber and Johnson, following Central Intelligence (2016) and Skyscraper (2018). ERC Specialists Powered by Help Scout. The guidance, however, is very taxpayer unfriendly as it, in effect, provides that majority owners and their spouses can only treat their wages as qualified to the extent they do not have any living related individuals (ancestors, lineal descendants, siblings and step-siblings, aunts and uncles, nieces and nephews, in-laws, or other individuals) sharing the same principal place of abode as the taxpayer. Additionally, the "more than nominal" concept is introduced as a way to analyze whether an impact to one portion of an essential business is sufficient to suspend the larger essential business. L. 1172 (March 11, 2021). r}"wc_cHO^$ Xb&5`{3hD]fU;@XjY l An employer's size is a factor in determining qualified wages. The ARPA created a new class of eligible employers for Q3 and Q4 of 2021, Recovery Startup Businesses (RSB). NOTICE. The Notice defines nominal portion to be a portion which is 10 percent or less of the total gross receipts of the business; or uses 10 percent or less of the hours of service performed by employees in the business. Notice 2021-20 implements the CAAs change, with Section I (Answer 49) dedicated to explaining the interaction between ERCs and the PPP. Partial Suspension of Operations IRS Notice 2021-23 ("the new Notice"), issued on April 2, 2020, is the latest guidance provided for the Employee Retention Credit ("ERC"). As we have previously discussed, Notice 2021-20 formalized much of the informal guidance on the application of ERTCs that was issued by the IRS via FAQs over the course of 2020. Full or Partial Suspension of Trade or Business OperationsQuestions 11-22E. AnEligible Employeris defined in section 2301(c)(2) of the CARES Act means any employer, including an Internal Revenue Code Section 501(c) tax exempt entity, that was carrying on a trade or business during 2020 and either: The definition ofQualified Wagesdepends on how many employees an eligible employer has. The IRS in early March 2021 issued Notice 2021-20 to formalize and clarify previously issued information contained in a set of frequently asked questions (FAQs) available on the IRS website with respect to the employee retention credit for the 2020 calendar year. Under the website FAQs, a partial suspension does not occur if an employer's workplace is closed by a governmental order but the employer is able to continue operations comparable to its pre-closure operations by requiring employees to telework. 3134 is that, for the third and fourth quarters of 2021, eligible employers claim the credit against the employers share of Medicare tax (or equivalent portion of Tier 1 tax under the Railroad Retirement Tax Act) rather than, as previously, against the employers share of Social Security tax (or its equivalent Railroad Retirement Tax Act portion). Specifically, Notice 2021-23 clarifies rules for employers claiming ERTCs for wages paid after December 31, 2020 through June 30, 2021, and expands on prior guidance provided by the IRS in Notice 2021-20. However, Notice 2021-20 only applied to ERTCs claimed for wages paid in 2020 despite extension of the ERTC program through June 30, 2021, under the Relief Act. David J. Kaufmanis a member of Thompson Coburn LLPs Corporate & Securities practice group. of Notice 2021-20 are generally applicable to ERTCs for the first two calendar quarters of 2021. endstream endobj 147 0 obj <>stream A governmental entity that is a college or university, or the principal purpose or function of which is providing medical or hospital care, is an eligible employer for purposes of ERTCs for wages paid in the first two calendar quarters of 2021. The Notice also clarifies other issues, particularly in determining if a governmental order limiting commerce, travel or group meetings due to COVID-19 results in a partial suspension of business operations. G,-TSs7re%Z3n ^Y\-]]ZxA.w-qj;so[6|S(#.JIxhk:s5 ^WhF5f l\U]0 This point was illustrated through examples. REGISTRATION PROCEDURES . Notice 2021-20 requires employers to reduce their deduction for qualified wages, including qualified health plan expenses, by their ERC amount. D. Full or Partial Suspension of Trade or Business Operations. it in a good faith effort to retain us, and, further, even if you consider it confidential, Section III of this notice provides guidance in Q/A format regarding the application of section 2301 of the CARES Act. Because PPP borrowers only became eligible to claim the ERC on December 27, 2020, and ERC Qualified Wages cannot be used for PPP loan forgiveness, the Notice explains which payroll costs included on the PPP loan forgiveness application may be used as ERC Qualified Wages. stream For the first two quarters of 2021, however, Section 207 of the Disaster Relief Act includes an exception for tax-exempt public colleges, universities and hospitals that are described in IRC Section 501(c)(1). Additional guidance on miscellaneous issues that apply to the employee retention credit in both 2020 and 2021, Qualified wages after June 30, 2021, and before January 1, 2022. In short, if the majority owner has any living family other than their spouse (by blood or marriage), their wages cannot be qualified. %PDF-1.6 % Notice 2021-20, released on March 1, 2021, provided guidance on qualified wages paid in 2020. The reader also is cautioned that this material may not be applicable to, or suitable for, the reader's specific circumstances or needs, and may require consideration of non-tax and other tax factors if any action is to be contemplated. On April 29, 2020, the IRS posted over 90 ERC FAQs on its website. See Treasury Regulation 1.6662-4(d). Association of International Certified Professional Accountants. ), Notice 2021-20 formalizes previously issued guidance that had explained that essential businesses may be considered partially suspended if more than a nominal portion of its business operations are suspended by a government order. (Answer 11; FAQ 30.) Alec Oveis and Joshua Thomas are associates in the New York office.The authors thank Ropes & Gray LLP law clerk Phillip Popkin for his assistance in preparing this article. gtag('config', 'G-LH75ZGWFY2'); The Internal Revenue Service (IRS) issued Notice 2021-23 on April 2, 2021, for employers claiming the employee retention tax credit (the ERTC) under the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act), as modified by the Taxpayer Certainty and Disaster Tax Relief Act of 2020 (the Relief Act). Employers that did not exist in the same quarter in 2019 must use the corresponding quarter in 2020 as the benchmark quarter. All rights reserved. For example, an employer could elect to be a Q2 2021 eligible employer if its Q1 2021 gross receipts are less than 80% of its Q1 2019 gross receipts. This quick guide walks you through the process of adding the Journal of Accountancy as a favorite news source in the News app from Apple. Section 3111(f) of the Code permits a qualified small business to elect to apply part or all of its research credit available under section 41 against the tax imposed under section 3111(a) of the Code. Questions 23-28. For the first two quarters of 2021, the maximum per-employee qualified wages that may be taken into account increase to $10,000 per quarter. 0 Notice 2021-49 and guidance for the third and fourth quarters of 2021 . Section 3111(e) of the Code permits qualified tax-exempt organizations that hire qualified veterans to claim a credit against the employers share of social security tax imposed under section 3111(a) of the Code. Guidance on the Employee Retention Credit under Section 2301 of the Coronavirus Aid, Relief, and Economic Security Act. Edward Buchholzis a member of Thompson Coburn LLPs Tax Group. Please click 8 CONTACT 19. Individual J is married to Individual K, and they have no other family members as defined in section 267(c)(4) of the Code. If the PPP loan is not forgiven, any qualified wages included as payroll costs in the PPP Loan Forgiveness Application can subsequently be used as qualified wages for ERC. 117-2. The credit was created by the Coronavirus Aid, Relief, and Economic Security (CARES) Act, P.L 116-136, and amended by the Consolidated Appropriations Act, 2021, P.L 116-260. Example 3: Corporation C is owned 100 percent by Individual J.Corporation C is an eligible employer with respect to the first calendar quarter of 2021. The employer does not reduce its deduction for its share of Social Security and Medicare taxes by any portion of the credit. Prior Ropes & Gray LLP coverage of ERCs includes alerts on the CARES Acts tax-related provisions, initial ERC guidance, CAAs tax-related provisions, and ARPAs tax-related provisions. (Answer 58. the ACCEPT button if you understand and accept the foregoing statement and wish DETAIL. Guidance. Specifically, Notice 2021-23 clarifies rules for employers claiming ERTCs for wages paid after December 31, 2020 through June 30, 2021, and expands on prior guidance provided by the IRS in Notice 2021-20. . Eligible EmployersQuestions 1-6B. Some are essential to make our site work; others help us improve the user experience. (Answer 18. Todays notice amplifies guidance about the employee retention credit as previously provided by the IRS in Notice 2021-20 and Notice 2021-23 (read TaxNewsFlash and TaxNewsFlash, respectively). Notice of the Random Delivery of New and Old Alipay Materials. Copies of the completed federal employment tax returns that the employer submitted to the IRS (or, for employers that use third-party payers to meet their employment tax obligations, records of information provided to the third-party payer regarding the employers entitlement to the credit claimed on the federal employment tax return). In Notice 2021-23, the IRS released guidance on the employee retention credit (ERC) for the first two quarters of 2021.The new guidance amplifies Notice 2021-20 (see Tax Alert 2021-0513) by incorporating the changes made by Section 207 of the Taxpayer Certainty and Disaster Tax Relief Act of 2020 (Disaster Relief Act), which apply on a prospective basis for qualified wages paid in the first . For these expanded categories of eligible employers, Notice 2021-23 provides new guidance on the definition of qualified wages. Section 1.170A-9(d)(1). 3134(c)(2)(C) (which prescribes how organizations exempt from tax under Secs. Special Issues for Employers: Use of Third-Party PayersQuestions 62-69N. The Notice deems a portion of the business operations to be more than nominal if either: The gross receipts from that portion of the business operations is at least 10% of the total gross receipts (both determined using the gross receipts of the same calendar quarter in 2019), The hours of service performed by employees in that portion of the business is at least 10% of the total number of hours of service performed by all employees in the employer's business (both determined using the number of hours of service performed by employees in the same calendar quarter in 2019). The CARES Act excluded governmental employers from eligibility for the ERC. Specifically, the Notice addresses changes made to the ERC by the American Rescue Plan Act of 2021 (ARPA).
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