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New IRS Guidance for Employee Retention Tax Credit

by Sarah Skillin Woodard

The Internal Revenue Service issued on March 1st guidance for employers claiming the employee retention tax credit for calendar quarters in 2020, as established under CARES Act and modified by the year-end COVID relief bill (Taxpayer Certainty and Disaster Tax Relief Act of 2020).

According to the IRS, 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. Here are some highlights from Notice 2021-20:

  • Eligible employers that received PPP loans are permitted to claim the employee retention tax credit, although the same wages cannot be counted both for seeking forgiveness of the PPP loan and calculating the employee retention credit. The Notice explains when and how employers that received a PPP loan can claim the employee retention credit for 2020.

  • The Notice provides answers to many technical questions such as: who is an eligible employer; what constitutes full or partial suspension of trade or business operations; what is a significant decline in gross receipts; how much is the maximum amount of an eligible employer’s employee retention credit; what are qualified wages; how does an eligible employer claim the employee retention credit; and how does an eligible employer substantiate the claim for the credit.

  • This Notice only applies to 2020. The IRS states that it plans to release additional guidance soon addressing the changes for 2021.

IRS provides guidance for employers claiming the Employee Retention Credit for 2020, including eligibility rules for PPP borrowers, Internal Revenue Service, Mar. 1, 2021. See generally the IRS page providing information to employers on all aspects of the CARES Act and related statutes: Coronavirus Tax Relief for Businesses and Tax-Exempt Entities, IRS website, updated Mar. 1, 2021.

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