8/4/2021
The Treasury Department and the Internal Revenue Service issued more guidance on the employee retention credit, including guidance for employers who pay qualified wages after June 30, 2021 and before January 1, 2022, and additional guidance on miscellaneous issues that apply to the employee retention credit in both 2020 and 2021.
Notice 2021-49 expands on prior guidance regarding the employee retention credit given in Notice 2021-20 and Notice 2021-23 by addressing changes made by the American Rescue Plan Act of 2021 (ARP) to the employee retention credit applicable to the third and fourth quarters of 2021.
Changes Include:
(1) Making the credit available to employers paying wages after June 30, 2021 and before January 1, 2022.
(2) Expanding the definition of eligible employer to include “recovery startup businesses”.
(3) Modifying the definition of qualified wages for “severely financially distressed employers”.
(4) Providing that the employee retention credit does not apply to qualified wages taken into account as payroll costs connected with shuttered venue grants or restaurant revitalization grants.
Notice 2021-49 also provides guidance on miscellaneous issues regarding the employee retention credit for both 2020 and 2021 by responding to questions asked including:
Definition of full-time employee and whether it includes full-time equivalents
Treatment of tips as qualified wages and the interaction with the section 45B credit
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
Reporting
Eligible employers will report their total qualified wages and the related health insurance costs for each quarter on their employment tax returns (generally, Form 941) for the applicable period. 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 Form 7200, Advance Payment of Employer Credits Due to COVID-19.
More information on the employee retention credit and other COVID-19 economic relief efforts
Updates on the implementation of this employee retention credit, Frequently Asked Questions on Tax Credits for Required Paid Leave and other information can be found on the IRS Coronavirus page.