notice 2021 20 and notice 2021 23

Documentation to show how the employer determined the amount of allocable qualified health plan expenses. endobj 5 Additional changes to the ERC were made under section 9651 of the American Rescue Plan Act of 2021 ("ARP Act"), Pub. 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. 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. 3134, added by the American Rescue Plan Act (ARPA), P.L. 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. transmit to us. Other Rules Related to the ERC IIG. 180.00 : . The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments. 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. The key exception to this is the hours lookback rule applicable to large employers set forth in Notice 2021-20. 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). Thompson Coburn LLP var today = new Date(); var yyyy = today.getFullYear();document.write(yyyy + " "); | Attorney Advertising, Copyright var today = new Date(); var yyyy = today.getFullYear();document.write(yyyy + " "); JD Supra, LLC. 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. Governmental OrdersQuestion 10D. 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. In keeping with the Disaster Relief Act, Notice 2021-23 allows employers to claim any applicable amount of qualified wages up to the statutory cap, rather than limiting qualified wages to the employee's immediately preceding rate, as the CARES Act had originally required. 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. Initially, the CARES Act prevented any business receiving an SBA Loan under the PPP from claiming ERCs. 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 <>/ExtGState<>/ProcSet[/PDF/Text/ImageB/ImageC/ImageI] >>/MediaBox[ 0 0 612 792] /Contents 4 0 R/Group<>/Tabs/S/StructParents 0>> Notice 2021-23 provides new guidance regarding other changes made by the CAA, including the expansion of eligible employers to include certain not-for-profit organizations and colleges or universities whose principal purpose is providing medical or hospital care. ] (Answer 16. Special Issues for Employers: Use of Third-Party PayersQuestions 62-69N. Notice 2021-20 requires employers to reduce their deduction for qualified wages, including qualified health plan expenses, by their ERC amount. endobj 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. (It is worth noting that mask-wearing is included both in the list of modifications that may. in the case of a large eligible employer, work records and documentation showing that wages were paid for time an employee was not providing services. D. Full or Partial Suspension of Trade or Business Operations. 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 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 two quarters of 2021. 209 0 obj <>stream Alipay Portal Help Center Upgrade Notice. Notice 2021-20, Answer 70, provides this list of documentation to substantiate eligibility for ERCs: An eligible employer is an employer that either fully or partially suspended operations because of a governmental order or experienced significant declines in gross revenues, as defined. NOTICE. The maximum credit available for each employee is $5,000 in 2020. 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. 340.00 : Athletics & Recreation . 117-2. 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, Special Issues for Employees: Income and DeductionQuestion 59L. Log in to keep reading or access research tools. %%EOF Bloomberg Tax Insights articles are written by experienced practitioners, academics, and policy experts discussing developments and current issues in taxation. <>/Metadata 923 0 R/ViewerPreferences 924 0 R>> 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. doing so will not create a conflict of interest. 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 $1 million (with rules under Sec. Notice 2021-20 specifies that the documentation should be retained for at least four years from the later of the date the tax becomes due or is paid. On March 1, 2021, the IRS released formal guidance Notice 2021-20 on the employee retention credit for 2020. {[.D)I}QE'i4PVUF$DpmU(l 7 F. Maximum Amount of Employer's Employee Retention Credit. David J. Kaufmanis a member of Thompson Coburn LLPs Corporate & Securities practice group. Pursuant to the Notice, the same rules under the Gross Receipts Test per Notices 2021-20 and 2021-23 apply for purposes of determining whether an employer is an SFDE, to include: Lastly, the Notice makes clear that full-time equivalent (FTE) employees are not included when determining whether an employer is large or small, but wages paid to FTEs can be qualified, and the election to use the gross receipts from the previous quarter to determine eligibility in 2021 is not irrevocable. The Notice indicates that the records should be maintained for at least four years. Also, we cannot treat unsolicited Questions 11-22. However, qualified wages cannot be used for ERCs and as payroll costs for PPP loan forgiveness. 8 CONTACT 19. 117-2. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. EY US Tax News Update Master Agreement | EY Privacy Statement. 2021-1-23 23:00. Notice 2021-20 provides new guidance by providing a non-exhaustive list of factors that can be considered in determining if an employers modifications to operations allow the business to operate in a comparable manner: the employers telework capabilities; the portability of employees work; the need for presence in employees physical work space; and delays caused by transitioning to telework operations. PRIVACY ACT AND NOTICE OF DISCLOSURE 1. Section 206 of the Disaster Relief Act narrowed the limitation so that employers receiving PPP loans may elect to treat payroll costs paid during the loan-covered period as qualified wages to the extent the wages are not paid with forgiven PPP loan proceeds. 3134(c)(3)(A)(ii)(II) as if it applies to recovery startup businesses. 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. (Answer 57.). In April 2021, IRS issued Notice 2021-24, which extends to the 2021 ERCs the penalty relief previously provided for in Notice 2020-22 for failure to deposit employment taxes if the failure was due to the reasonable anticipation of receipt of ERCs. The determination should be documented and payroll systems enabled to capture any expenses eligible for the 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. Accordingly, please do not send us any information 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. r}"wc_cHO^$ Xb&5`{3hD]fU;@XjY l The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organization. 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. Timing of qualified wages deduction disallowance. xYnF}7Graxm@c;Nv&`y)J&5"eSU}!%pfXxtSy~\m^dn3{$?llq~CS/EX-,Ug>9~>?~;? The purpose of this report is to provide text of Notice 2021-49. (The additional guidance referenced in Notice 2021-23 regarding penalty relief is covered by Notice 2021-24.). 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. The guidance is not specific on any of these items. IRS notices provide greater legal authority than do IRS FAQs. 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. 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. DETAIL. 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. stream 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. 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. These changesapplicable to the third and fourth quarters of 2021include . 116-127, 134 Stat. (Answer 71.) Additionally, the guidance clarifies that eligible employers are not prohibited from claiming the ERC and 45B tip credit on the same wages, again, if all other requirements are satisfied. An employer's size is a factor in determining qualified wages. 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. 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. H. Allocable Qualified Health Plan Expenses. The ARPA created a new class of eligible employers for Q3 and Q4 of 2021, Recovery Startup Businesses (RSB). In general, Notice 202120 formalized - . 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). Qualified WagesQuestions 30-39H. Claiming the Employee Retention CreditQuestion 50-58K. 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). The IRS then issuedNotice 2021-23 as guidance concerning the employee retention credit for qualified wages paid for the first two quarters of 2021. 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. 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. The reader should contact his or her Ernst & Young LLP or other tax professional prior to taking any action based upon this information. Specifically, the Notice addresses changes made to the ERC by the American Rescue Plan Act of 2021 (ARPA). Although we would like to hear from you, we cannot represent you until we know that Certain FAQs were later modified, and new FAQs were added over time. ), 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. 116-260, will continue to apply to the third and fourth calendar quarters of 2021. Election not to Take Certain Wages into Account and Coordination with PPP Loan IIE. Employers that did not exist in the same quarter in 2019 must use the corresponding quarter in 2020 as the benchmark quarter. The changes generally have an effective date of January 1, 2021. 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. window.dataLayer = window.dataLayer || []; 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. in December 2020, but class started in January 2021, this payment would show on the 2021 T2202 form. Under the ERC as originally enacted, the credit was 50% of qualified wages (including qualified health plan expenses), up to $10,000 in wages for all quarters in 2020. Notice 2021-23 amplifies Notice 2021-20 and explains the changes to the ERTC for the first two calendar quarters of 2021 pursuant to the Relief Act. Notice 2021-20 also provides new guidance regarding substantiation requirements. Notice 2021-20 makes official most of the guidance previously provided by the FAQs regarding when operations are considered partially suspended. 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. 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. 2023. L. No. endstream endobj 146 0 obj <>stream Whose average annual gross receipts over a certain period do not exceed $1M. Paul Bonner (Paul.Bonner@aicpa-cima.com) is a JofA senior editor. Under this new guidance, the IRS confirms that employers who previously took PPP loans can now also claim ERCs, providing them greater access to benefits under Covid-related legislation. 1 0 obj When read together, Notice 2021-20 and Notice 2021-23 providedemployers 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. 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. This point was illustrated through examples. The IRS has finally issued formal guidance regarding employee retention credits aligned with Congressional intent in various legislative pandemic relief packages. 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). Accordingly, Corporation B may not treat as qualified wages any wages paid to Individual G because Individual G is a related individual for purposes of the employee retention credit. In short, if the majority owner has any living family other than their spouse (by blood or marriage), their wages cannot be qualified. Notice 2021-23 also provides rules allowing small eligible employers to receive advance payments of their ERC under certain circumstances. Documentation to show how the employer determined it was an eligible employer that paid qualified wages, including: any governmental order to suspend the employers business operations; any records the employer relied upon to determine whether more than a nominal portion of its operations were suspended due to a governmental order or whether a governmental order had more than a nominal effect on its business operations; any records the employer used to determine it had experienced a significant decline in gross receipts; any records of which employees received qualified wages and in what amounts; and. The Notice also details factors that should be considered in determining whether an employer is able to continue operations (such that the employers operations are not considered to be fully or partially suspended). Guidance on the Employee Retention Credit under Section 2301 of the Coronavirus Aid, Relief, and Economic Security Act. 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 ). Notice 2021-23 explains that additional guidance will be published regarding the ARPA ERCs. 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. Claiming the ERC and Accessing Funds in Anticipation of the Credit IIB. Get the latest KPMG thought leadership directly to your individual personalized dashboard, Do Not Sell/Share My Personal Information, Notice 2021-49: Guidance for employers claiming employee retention credit, for third and fourth quarters 2021, Making the employee retention credit available to eligible employers that pay qualified wages after June 30, 2021, and before January 1, 2022, Expanding the definition of eligible employer to include recovery startup businesses, Modifying the definition of qualified wages for severely financially distressed employers, Providing that the employee retention credit does not apply to qualified wages taken into account as payroll costs in connection with a shuttered venue grant or a restaurant revitalization grant, The definition of full-time employee and whether that definition includes full-time equivalents, The treatment of tips as qualified wages and the interaction with the section 45B credit, The timing of the qualified wages deduction disallowance and whether taxpayers that already filed an income tax return must amend that return after claiming the credit on an adjusted employment tax return, Whether wages paid to majority owners and their spouses may be treated as qualified wages. Copyright 1996 2023, Ernst & Young LLP. the ACCEPT button if you understand and accept the foregoing statement and wish For example, a governmental healthcare provider could now qualify for this expanded benefit if it is not exempt under IRC Sections 501(c)(3) and 170(b)(1)(A)(iii) and maintains a principal purpose of providing medical care.
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