The Internal Revenue Service (IRS) issued guidance on March 1 for employers claiming the Employee Retention Credit (ERC) under the CARES Act, as modified by the Taxpayer Certainty and Disaster Tax Relief Act of 2020 (Relief Act), for calendar quarters in 2020. The guidance in Notice 2021-20 is similar to the information in the ERC FAQs, but includes clarifications and describes retroactive changes under the new law applicable to 2020, primarily relating to expanded eligibility for the credit.
For 2020, the ERC 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.
A significant change for 2020 made by the Relief Act permits eligible employers that received a Paycheck Protection Program (PPP) loan to claim the ERC, although the same wages cannot be counted both for seeking forgiveness of the PPP loan and calculating the ERC. Notice 2021-20 explains when and how employers that received a PPP loan can claim the ERC for 2020.
NCACPA worked with the office of Senator Richard Burr (R-NC) in February to support action which would ensure businesses can fully participate in the PPP and claim the ERC. Following our meeting with his legislative staff, Senator Burr co-signed a letter with Senator Maggie Hassan (D-NH) to encourage federal regulators to issue guidance making it clear that businesses can use PPP and ERC assistance to keep workers on the payroll, so long as employers do not “double-dip” by receiving PPP forgiveness and claiming the ERC for the same wages paid to employees.
Notice 2021-20 also provides answers to questions such as: who are eligible employers; 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 ERC; what are qualified wages; how does an eligible employer claim the ERC; and how does an eligible employer substantiate the claim for the credit.
While the Relief Act also extended and modified the ERC for the first two calendar quarters in 2021, Notice 2021-20 addresses only the rules applicable to 2020. The IRS plans to release additional guidance soon addressing the changes for 2021.
If you have questions about this issue or other policy matters, please contact NCACPA Director of Advocacy Robert Broome, CAE.