8/4/2021
Notice 2021-49: Guidance on the Employee Retention Credit under Section 3134 of the Code and on Miscellaneous Issues Related to the Employee Retention Credit expands on Notice 2021-20 and Notice 2021-23. The notice provides guidance on the employee retention credit applying to qualified wages paid after June 30, 2021 and before January 1, 2022 and addresses questions that the Treasury Department and the Internal Revenue Service received about the credit applicable for qualified wages paid after March 12, 2020 and before January 1, 2022.
Guidance on miscellaneous issues for both 2020 and 2021 includes:
Definition of full-time employee and whether that definition 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.
Clarification on changes made to the employee retention credit by the American Rescue Plan Act of 2021 (ARP) applicable to the third and fourth quarters of 2021 includes:
Making the 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
Guidance for Third and Fourth Quarters of 2021
The credit is available for the third and fourth quarters of 2021 (after June 30, 2021 and before January 1, 2022)
Eligible employers are expanded to include recovery startup businesses; the amount of the credit allowed can't exceed $50,000 for recovery startup businesses in each of the third and fourth quarters of 2021.
An eligible employer with gross receipts less than 10 percent of gross receipts for the corresponding quarter in 2019 (2020 if they didn't exist in 2019), is a severely financially distressed employer for the third and fourth quarters of 2021.
Employers receiving shuttered venue operators grants or restaurant revitalization grants can't treat the amounts they reported to the Small Business Administration (SBA), or otherwise accounted for as payroll costs, as qualified wages for the employee retention credit in the third and fourth quarters of 2021.
Answers to Questions for Both 2020 and 2021
Employers are not required to include full-time equivalents when figuring their average number of full-time employees to determine whether they are large or small eligible employers; an employee’s status as a full-time employee is irrelevant for purposes of identifying qualified wages; wages paid to an employees who are not full-time are qualified wages
Cash tips of $20 or more in a month are treated as wages paid by the employer, and any cash tips treated as wages are qualified wages. The credit is available with respect to unreported tips in an amount equal to the “excess employer social security tax” paid by the employer. No credit is allowed to the extent tips are used to meet the federal minimum wage rate that was in effect on January 1, 2007. Employers are are allowed to receive both the employee retention credit and the Employer Tax Credit for FICA Paid on Tip Income for the same wages.
A reduction in the amount of the deduction allowed for qualified wages, including qualified health plan expenses, caused by receiving the employee retention credit occurs for the tax year in which the qualified wages were paid or incurred. When the employee retention credit is claimed retroactively (relating to the eligibility of PPP borrowers to claim it), an amended tax return or administrative adjustment request (AAR) should be filed for the year the qualified wages were paid or incurred to correct overstated deductions taken for the same wages on the original return
Wages paid to controlling interest holders (more than 50% owners of the corporation's value), including spouses, are not qualified unless the controlling interest holder doesn't have any living relatives.
Reporting
Eligible employers will report their total qualified wages and related health insurance costs for each quarter on their employment tax returns (typically Form 941) for the applicable period. If a reduction in the employer's employment tax deposits is not sufficient to cover the credit, employers may receive an advance payment by submitting Form 7200, Advance Payment of Employer Credits Due to COVID-19.
IRB 2021-34, Aug. 23, 2021