The ERC is a refundable employment tax credit for eligible employers paying qualified wages (including qualified health plan expenses). 2021-1-23 23:00. 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. Notice 2021-23 clarifies that, as in 2020, employers may access the ERC for the first two quarters of 2021 before they file their employment tax returns by reducing their employment tax deposits (see Tax Alert 2020-0816 for requirements in 2020). There was a problem submitting your feedback. to proceed. 4 0 obj 448(c)(3) for their calculation if the entity has not been in existence for three years and by reference to the entitys predecessor). Please try again later. Notice 2021-23 provides the following key rules for the ERTC program for wages paid after December 31, 2020 through June 30, 2021: In addition to the specific issues discussed above, Notice 2021-23 includes further discussion of the rules for ERTCs claimed for the first two calendar quarters of 2021. Employers should continue to monitor the IRSs interpretive guidance for upcoming guidance on ERCs paid pursuant to the American Rescue Plan Act (ARPA). Notice 2021-20 specifies the records that employers should maintain to substantiate eligibility for the credit. The IRS issued Notice 2021-49 Wednesday that includes guidance on the extension and modification of the employee retention credit (ERC) under Sec. Accordingly, wages paid by Corporation C to Individual J and Individual K in the first calendar quarter of 2021 may be treated as qualified wages if the amounts satisfy the other requirements to be treated as qualified wages. IR -165 (August 4, 2021) briefly explains that Notice 2021-49 addresses changes made by the American Rescue Plan Act of 2021to the employee retention credit. We will continue to monitor updates and issue additional communications as new information becomes available. An employer can elect to use its gross receipts from the immediately preceding calendar quarter to determine whether it is an SFDE. Section III provides guidance in Q/A format (71 questions in all) on the following topics: A. Employers do not have to make any formal elections to calculate their gross receipts declines under the alternative method available to them, and they can continue accessing the credit by reducing their employment tax deposits or seeking refunds on an original or amended employment tax return. Isabelle Farrar, Alec Oveis, and Joshua Thomas of Ropes & Gray LLP summarize the IRS notices, explaining guidance on how businesses can take advantage simultaneously of both Paycheck Protection Program (PPP) loans and the employee retention credit (ERC), the documents businesses should maintain to substantiate ERCs, and factors to consider in evaluating whether operations are partially suspended. Prior to this Notice, the timing of that deduction disallowance has been a subject of question, especially in scenarios where the credit is claimed for a quarter in a prior year via Form 941-X. For entities other than tax-exempt organizations, this would include tax-exempt income. According to lan Redpath and Greg Urban, Notice 2021-20 and Notice 2021-23 do not apply to which of the following time periods? (The additional guidance referenced in Notice 2021-23 regarding penalty relief is covered by Notice 2021-24.). According to todays IRS release, this guidance is in response to questions that the IRS and Treasury Department received about the employee retention credit about topics such as: The IRS release explains that eligible employers are to report their total qualified wages and the related health insurance costs for each quarter on their employment tax returns (e.g., Form 941) for the applicable period. It appears that such amounts must be included in gross receipts. By clicking the ACCEPT button, you agree that we may review any information you For small employers, qualified wages are wages (including qualified health plan expenses) paid to any employee during the period operations were suspended or the period of the decline in gross receipts, regardless of whether its employees are providing services. Notice 2021-20 includes the same examples but also identifies a list of factors to consider in analyzing whether an order's impact on a business's operations is more than nominal. The notice amplifies Notices 2021-20 and 2021-23 (see also "IRS Issues Employee Retention Credit Guidance" and "How to Claim the Employee Retention Credit for the First Half of . ZR1@7K, =?-oQ&O-$C`DK[B" v K"\%v3. Answers 56, 57, and 58 also contain information on interaction with the PPP. The limitations on receiving advance payments (Form 7200) are not likely to affect many employers, as that seems to have been the least common way employers have chosen to access the ERC. 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. Ernst & Young LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect the information contained herein. 3 0 obj [Event Overview] - When to enter: 20:00 to 20:30, Saturday, August 7, 2021 (KST) - Eligibility: CARAT Membership holders - Number of winners: 200 . The key exception to this is the hours lookback rule applicable to large employers set forth in Notice 2021-20. 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. 206 0 obj <>/Filter/FlateDecode/ID[<92C12BE1DDD12D4C93BD9798762F6FE7><7ED67C34B5C8EC419FF6756571D33361>]/Index[199 11]/Info 198 0 R/Length 55/Prev 149074/Root 200 0 R/Size 210/Type/XRef/W[1 2 1]>>stream No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. Some are essential to make our site work; others help us improve the user experience. <>/Metadata 923 0 R/ViewerPreferences 924 0 R>> 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). Although we would like to hear from you, we cannot represent you until we know that On December 27, 2020, the Consolidated Appropriations Act, 2021 was enacted, which included the Disaster Relief Act. Special Issues for Employers: Income and DeductionQuestions 60-61M. 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). Notice 2021-20 requires employers to reduce their deduction for qualified wages, including qualified health plan expenses, by their ERC amount. Notice 2021-49 reinforces the language in Notice 2021-20 that . An employer that was not in existence during 2019 can use the relevant quarter in 2020 for the reference period, and. 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. On April 29, 2020, the IRS posted over 90 ERC FAQs on its website. %%EOF Questions 30-39. window.dataLayer = window.dataLayer || []; Regulations & Guidance IIH. Notice 2021-20 makes official most of the guidance previously provided by the FAQs regarding when operations are considered partially suspended. Under sections 7001 and 7003 of the FFCRA, employers with fewer than 500 employees that provide paid sick and family leave, up to specified limits, to employees unable to work or telework due to certain circumstances related to COVID-19 may claim tax credits. Notice 2021-23 incorporates the changes made by Section 207 of the Disaster Relief Act and applies to qualified wages paid in the first two 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. 281 (March 27, 2020), as amended by section 206 of the Taxpayer Certainty and . The Notice indicates that the records should be maintained for at least four years. Read ourprivacy policyto learn more. Certain changes were retroactive to enactment of the CARES Act, but most apply only to wages paid from January 1, 2021 through June 30, 2021 (see Tax Alert 2021-0019). of Notice 2021-20 provides that, under section 2301, eligible employers are entitled to claim the employee retention credit against the employer's share of social security tax after these taxes are reduced by any credits claimed under sections 3111 (e) and (f), sections 7001 and 7003 of the Families First Coronavirus Response Act 20.00 : Health Insurance . 700-20-01, on July 1, 2021, to obtain proposals for the Third-Party Administration Services. 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. 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. F. Maximum Amount of Employer's Employee Retention Credit. No member firm has any authority to obligate or bind KPMG International or any other member firm vis--vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. Notice 2021-20 incorporates most of the. doing so will not create a conflict of interest. )]B|v/SLQg Ci9h-YOK Section 207 of the Disaster Relief Act expanded the definition of small employer for the first two quarters of 2021 to include those with 500 or fewer full-time employees in 2019 (up from 100 or fewer for 2020). Under the new notice, an ERC may be claimed by an eligible employer for qualified wages paid in the third and fourth calendar quarters of 2021. 117-2. (It is worth noting that mask-wearing is included both in the list of modifications that may. . A recovery startup business is an employer that (1) is not otherwise an eligible employer under conditions (1) or (2) of the preceding sentence; that (2) began carrying on a trade or business after Feb. 15, 2020; (3) with average annual gross receipts for the three tax years preceding the quarter in which it claims the credit of no more than $1 million (with rules under Sec. Individual J and Individual K are both employees of Corporation C. Pursuant to the attribution rules of section 267(c), Individual K is attributed 100 percent ownership of Corporation A, and both Individual J and Individual K are treated as 100 percent owners.However, Individuals J and K do not have any of the relationships to each other described in section 152(d)(2)(A)-(H) of the Code. As originally enacted, the CARES Act prohibited employers that received PPP loans from claiming the ERC. The ARPA additionally provides that for Q3 and Q4 an employer whose gross receipts declined more than 90% from the corresponding quarter in 2019 is a Severely Financially Distressed Employer (SFDE). That is not otherwise eligible under the Gross Receipts or Suspension Tests. The CAA allows employers that previously received a PPP loan to be retroactively eligible for 2020 ERCs. ), Notice 2021-20 formalizes prior guidance explaining that business operations can be partially suspended if a workplace is closed for certain purposes but may remain open for other purposes, and the modification of business operations has more than a nominal effect . Certain FAQs were later modified, and new FAQs were added over time. Leases standard: Tackling implementation and beyond. 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). ;{gfiopx9&G;i&T3Hk7NPnLQ d~P? 9~v^P>x?)I4qNF'z$2e+|J Kxits+yXTh9R[Xv6rdZ\!1GGo:~Cvi~]f4ElY[!Mko&('-@ *SOL$kM=Mh:6nt;9Sh#DbW;o0J[AYP8SK Notice 2021-23 states that eligible employers must maintain documentation to support an employers eligibility based on a decline in gross receipts, without providing any concrete examples of documentation. 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. 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. Questions 11-22. 3134(c)(3)(A)(ii)(II) as if it applies to recovery startup businesses. 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. Click here to subscribe to News & Insights from Thompson Coburn LLP related to our practices as well as the latest on COVID-19 issues. Aggregation Rules IIF. Section III of this notice provides guidance in Q/A format regarding the application of section 2301 of the CARES Act. A taxpayer becomes an Eligible Employer if the trade or business suspended constitutes more than a nominal portion of business operations. 3231(e)(3) and they otherwise meet the requirements for qualified wages); the timing of the disallowance of a deduction for wages by the amount of the ERC; the alternative quarter election in determining whether there has been a decline in gross receipts; and how to calculate gross receipts of employers that came into existence in the middle of a calendar quarter for purposes of the gross receipts safe harbor in Section III.E of Notice 2021-20. Partial Suspension of Operations Thompson Coburn LLP continues to monitor these important developments in the CARES Act and other Federal relief efforts. EY US Tax News Update Master Agreement | EY Privacy Statement. While Notice 2021-20 states that it only applies to qualified wages paid in 2020, Notice 2021-23 extends Notice 2021-20s application to ERCs paid in the first two quarters of 2021, pursuant to the CAA. From research to software to news, find what you need to stay ahead. social security tax under Notice 2020-65, as modified by Notice 2021-11, which may affect the amount that an employer can request as an advance payment of the credit. 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. Notice 2021-49 and guidance for the third and fourth quarters of 2021 . Background IIA. it in a good faith effort to retain us, and, further, even if you consider it confidential, Presented research was carried out in 2021 and 2022 on the Felix soybean variety at the Agricultural Research and Development Station Turda, located in the Transylvanian Plain, Romania. . Documentation related to the determination of whether the employer is a member of an aggregated group treated as a single employer for purposes of the employee retention credit and, if so, how the aggregation affects the determination and allocation of the credit. L. No. (Answer 70.) The result under section 2301 of the CARES Act, as revised by the Relief Act, is substantially the same as the interpretation provided in the FAQs posted on IRS.gov in 2020. 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. 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. In March and April 2021, the IRS provided employers with more authoritative guidance through Notice 2021-20, Notice 2021-23, and Notice 2021-24. Aggregation RulesQuestions 7-9C. Kim Prince, owner of the Hotville Chicken, stands in the closed indoor dining area of her restaurant in Los Angeles. Corrigendum to Public Notice No. These modifications allow remuneration paid by governmental employers to constitute qualified wages for the ERC, notwithstanding that the remuneration may not constitute wages for purposes of IRC Section 3121. xYnF}7Graxm@c;Nv&`y)J&5"eSU}!%pfXxtSy~\m^dn3{$?llq~CS/EX-,Ug>9~>?~;? Retroactive changes were made to the employee retention credit by a provision of theTaxpayer Certainty and Disaster Tax Relief Act of 2020(a division of the Consolidated Appropriations Act, 2021). Eligible employers may now claim ERTCs equal to 70% of qualified wages paid to an employee. David J. Kaufmanis a member of Thompson Coburn LLPs Corporate & Securities practice group. 116-136, 134 Stat. Timing of the Deduction Disallowance. Full or Partial Suspension of Trade or Business OperationsQuestions 11-22E. This is the second of published guidance from the IRS on the ERC (third if you count the initial IRS website FAQs) and yet more guidance is expected. 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. <> The IRS provides employers with guidance regarding documentation requirements for substantiating eligibility for ERCs, which employers should follow closely. 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). Despite the extension of the ERTC through the third and fourth quarters of 2021 under the American Rescue Plan Act of 2021 (the Rescue Plan Act), Notice 2021-23 does not apply to ERTCs for wages paid during the third and fourth quarters of 2021, and the IRS will issue further guidance for such periods. The IRS said it will issue further guidance on applying Section 9651 of the American Rescue Plan Act of 2021 (ARPA), which extends the ERC to qualified wages paid in the last two quarters of 2021. G,-TSs7re%Z3n ^Y\-]]ZxA.w-qj;so[6|S(#.JIxhk:s5 ^WhF5f l\U]0 However, amounts not included on the PPP loan forgiveness application that could have been included (e.g., rent expenses, utilities) cannot be considered for PPP loan forgiveness. The changes generally have an effective date of January 1, 2021. Substantiation RequirementsQuestions 70-71, "KPMG report: Notice 2021-20 provides much anticipated guidance regarding the employee retention credit for 2020" - KMPG International, "IRS Clarifies Legislative Changes to the ERC" - The Law Firm of Thompson Coburn LLP, "IRS Clarifies Employee Retention Tax Credit Rules for Q1 and Q2 of 2021" - The Law Firm of Thompson Coburn LLP, "Guidance on Claiming the ERC for Third and Fourth Quarters of 2021" - Journal of Accountancy, "IRS Expands the ERC and Provides Additional Guidance" - GPW Certified Public Accountants, "IRS Notice 2021-20 Provides Clarity for the ERC" - KempKlein Law Firm, "Details on the Latest Notice on the ERC" - Thomson Reuters, "IRS Issues Even More ERC Guidance" - Spidell's Federal Taxletter, For more The Treasury Department issued three notices in March and April 2021 regarding employee retention credits, Notice 2021-20, Notice 2021-23, and Notice 2021-24. Purpose II. r}"wc_cHO^$ Xb&5`{3hD]fU;@XjY l Accordingly, please do not send us any information Guidance. 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. Please see below for more detailed information on how to participate. 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). Notice on Suspending Settlement During Labour . 3134, added by the American Rescue Plan Act (ARPA), P.L. The CARES Act excluded governmental employers from eligibility for the ERC. Notice 2021-23 provides the following key rules for the ERTC program for wages paid after December 31, 2020 through June 30, 2021: In addition to the specific issues discussed above, Notice 2021-23 includes further discussion of the rules for ERTCs claimed for the first two calendar quarters of 2021. 3121(a) or compensation under Sec. A. Notice 2021-23 explains that additional guidance will be published regarding the ARPA ERCs. The Agreement awarded through this RFP process will replace the current Third-Party administrator service Agreement for the Savings Plus Program (Savings Plus . endstream endobj 200 0 obj <. 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. The information contained herein is general in nature and is not intended, and should not be construed, as legal, accounting or tax advice or opinion provided by Ernst & Young LLP to the reader. The new accounting standard provides greater transparency but requires wide-ranging data gathering. Section II.A. %PDF-1.6 % (Answer 11. The key exception to this is the hours lookback rule applicable to large employers set forth in Notice 2021-20. Small employersthose with 500 or fewer full-time employeesmay claim advance payment of ERTCs to which they are entitled by filing Form 7200, Advance of Employer Credits Due to COVID-19, but such advances are not available to large employers (i.e., those with greater than 500 full-time employees) in the first two calendar quarters of 2021 like they were in 2020. Interaction with Paycheck Protection Program (PPP) LoansQuestion 49J. The notice also provides guidance on several miscellaneous ERC concerns, including whether wages paid to an employee who is a majority owner of a corporation or noncorporate entity and/or that individuals spouse may be treated as qualified wages for purposes of the credit. 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. Employers receiving the ERC must reduce their deductions for compensation expenses to the extent of the credits received. In the film, an FBI agent reluctantly teams up with a renowned art robber in order to catch an even . We encourage you to reach out to your Baker Tilly advisor regarding how any of the above may impact your situation. 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 $14,000 in the aggregate for the first two calendar quarters of 2021. The Internal Revenue Service (IRS) issued Notice 2021-23 on April 2, 2021, for employers claiming the employee retention tax credit (the ERTC) under the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act), as modified by the Taxpayer Certainty and Disaster Tax Relief Act of 2020 (the Relief Act). The IRS then issuedNotice 2021-23 as guidance concerning the employee retention credit for qualified wages paid for the first two quarters of 2021. 2021-1-25 20:30. This notice amplifies prior guidance issued in Notice 2021-20 and Notice 2021-23. D+i j@NZsF@;dN4 ZHz&=O&2~$U{Xj"&3x^h2 uOZo7FiY2||8-eE*uI%db:1MjX:v\F_oDi4h {[.D)I}QE'i4PVUF$DpmU(l 7 If a taxpayer has claimed the ERC in 2020 because of the retroactive amendment allowing PPP loan borrowers to claim the ERC or otherwise file an adjusted employment tax return (Form 941-X) to claim the ERC, the Notice makes clear that the taxpayer must file an amended federal income tax return or, if applicable, a partnership subject to the Centralized Partnership Audit Regime must file an Administrative Adjustment Request to reduce the deduction for the wages on which the credits were claimed. When read together, Notice 2021-20 and Notice 2021-23 provided employers with information to assist 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). G. Qualified Wages. A non-exhaustive list of modifications include limiting occupancy to provide for social distancing, requiring appointments for service instead of walk-in service, changing the format of service, and requiring employees and customers to wear face coverings. 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 . All rights reserved. In March of 2021, IRS released Notice 2021-20 with guidance on qualified wages paid in 2020, incorporating most of the FAQs from the IRS website and addressing the retroactive ERC amendments made by Section 206 of the Disaster Relief Act (Tax Alert 2021-0513 ). endobj The IRS has finally issued formal guidance regarding employee retention credits aligned with Congressional intent in various legislative pandemic relief packages. Notice 2021-20, released on March 1, 2021, provided guidance on qualified wages paid in 2020. Neither Notice 2021-20 nor Notice 2021-23 applies to ERCs paid in the second two quarters of 2021, pursuant to the American Rescue Plan Act (ARPA). 2023. about any matter that may involve you until you receive a written statement from 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. 02/11/2021: 02/11/2021 20:10:23: Download : 98: 32/2015-20: Notice 2021-20 continues to apply to all employee retention credits for calendar quarters in 2020. Both of these calculations are performed based on facts for the same quarter in 2019 as the quarter in 2020 to which the mandate applies. Please click The Notice provides that Treasury and the IRS will continue to monitor potential legislation related to the ERC that may impact certain rules it covers. %PDF-1.7 The employee retention credit does not apply to the qualified wages for which the election or deemed election is made. If only part of the PPP loan is forgiven, then the employer is deemed to make the election for the minimum amount of wages that are necessary to result in the forgiven amount. The reader should contact his or her Ernst & Young LLP or other tax professional prior to taking any action based upon this information.
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