IRS Clarifies PPP Loans and Retention Credit Salary Reporting Rules | Brownstein Hyatt Farber Schreck
On March 1, the Internal Revenue Service (IRS) issued Notice 2021-20, which provides updated guidance on the Employee Retention Tax Credit (ERTC) as it applied prior to January 1, 2021. The ERTC was first enacted on March 27, 2020, in accordance with art. 2301 of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). It offered eligible employers a refundable tax credit of up to $ 5,000 per employee, for eligible salaries paid from March 13, 2020 to December 31, 2020. The provision was extended and broadened by ss. 206 and 207 of the 2021 Consolidated Appropriations Act (CAA), which was promulgated on December 27, 2020.
Second. CAA 206 made the following changes to the ERTC, as if they were originally included in the CARES Act: (1) clarified that eligible employers can obtain a paycheck protection program loan and claim the ERTC, but the amounts canceled under the PPP loan cannot be taken into account qualified retention salaries; (2) provided that the expenses of the group health insurance plan can be considered as eligible salaries when no other salary is paid; and (3) clarified the definition of gross revenue for tax-exempt organizations.
Second. CAA 207 improved the ERTC from January 1, 2021 to June 30, 2021. It also increased credit from 50% to 70% of skilled salary, expanded eligibility by allowing access to businesses that are experiencing a year by 20% – an annual decrease in gross revenue and an increase in the allowable salary cap per employee from $ 10,000 for the year to $ 10,000 each quarter. The CAA has also made changes to the eligibility rules for receiving advance credit payments and limits on the amount of advances.
This notice provides employers with updated guidance based on changes made only by Sec. CAA 206 to the credit with respect to the following matters:
- Eligible employers
- Aggregation rules Government orders
- Total or partial suspension of trade or commercial activities
- Significant decrease in gross revenue F. Maximum amount of employer’s employee retention credit
- Qualified wages
- Eligible health insurance plan expenses attributable
- Interaction with Paycheck Protection Program (PPP) Loans
- Employee retention credit claim
- Special questions for employees: income and deductions
- Special questions for employers: income and deduction
- Special problems for employers: use of third-party payers
- Justification requirements
Brownstein’s Tax Policy Team will update its Guide to the employee retention tax credit in the coming days. Please note that Notice 2021-20 does not address changes that apply to the ERTC for 2021, but the Treasury Department and IRS will address these changes in future guidance.