Guidance addresses retroactive ERTC changes in 2020 omnibus
The Internal Revenue Service issued guidance (Notice 2020-21) on March 1 that addresses retroactive changes to the employee retention tax credit (ERTC) that were included in the Consolidated Appropriations Act, 2021, the omnibus tax-and-spending legislation that was signed into law last December 27.
The ERTC was enacted in the Coronavirus Aid, Relief, and Economic Security (CARES) Act in March of last year. For 2020, the ERTC can be claimed by employers who paid qualified wages after March 12, 2020, and before January 1, 2021, and who experienced a full or partial suspension of their operations or a significant decline in gross receipts. The credit is equal to 50 percent of qualified wages paid, including qualified health plan expenses, for up to $10,000 per employee in 2020. The maximum credit available for each employee is $5,000 in 2020.
The 2020 year-end omnibus measure extended the ERTC through June 30, 2021 and made a number of enhancements and modifications to the credit, including a retroactive change permitting eligible employers that received a loan under the CARES Act’s Paycheck Protection Program (PPP) to also claim the ERTC. (An employer is not permitted to take the same wages into account for seeking PPP loan forgiveness and calculating the ERTC, however.)
Notice 2021-20 explains when and how employers that received a PPP loan can claim the employee retention credit for 2020.
The notice also addresses issues such as the definition of an eligible employer, what constitutes full or partial suspension of trade or business operations, what constitutes a significant decline in gross receipts, how to determine the maximum amount of an eligible employer’s employee retention credit, the definition of qualified wages, how an eligible employer can claim the employee retention credit, and how an eligible employer may substantiate the claim for the credit.
Separate guidance planned for 2021 ERTC changes
The omnibus package also extended and modified the ERTC for the first two calendar quarters in 2021. Notice 2021-20, however, addresses only the rules applicable to 2020. The IRS plans to address changes that are effective for 2021 in future guidance.
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