Notice 2021-20 makes official most of the guidance previously provided by the FAQs regarding when operations are considered partially suspended. it in a good faith effort to retain us, and, further, even if you consider it confidential, `kd00ch6lE0Q9Sq~9s;O#10 .n9 />;^F0t9@TA*Qo[5I; W$ >FQA!\ni;'j C|Ng6&68*t\ Certain changes were retroactive to enactment of the CARES Act, but most apply only to wages paid from January 1, 2021 through June 30, 2021 (see Tax Alert 2021-0019). Although the limit on the maximum ERC in the first half of 2021 of 70% of up to $10,000 of an employees qualified wages per calendar quarter (i.e., $7,000) continues to apply to the third and fourth calendar quarters of 2021, the notice notes that a separate credit limit of $50,000 per calendar quarter applies to recovery startup businesses (after application of the $10,000 wage limit). 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. The ARPA created a new class of eligible employers for Q3 and Q4 of 2021, Recovery Startup Businesses (RSB). 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. This is SEVENTEEN Weverse. social security tax under Notice 2020-65, as modified by Notice 2021-11, which may affect the amount that an employer can request as an advance payment of the credit. 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. )]B|v/SLQg Ci9h-YOK . For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 3712, 1801 K Street NW, Washington, DC 20006. The IRS said it will issue further guidance on applying Section 9651 of the American Rescue Plan Act of 2021 (ARPA), which extends the ERC to qualified wages paid in the last two quarters of 2021. 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. Regulations & Guidance IIH. The guidance makes it clear that additional factors may be considered as well if relevant[. Individual J and Individual K are both employees of Corporation C. Pursuant to the attribution rules of section 267(c), Individual K is attributed 100 percent ownership of Corporation A, and both Individual J and Individual K are treated as 100 percent owners.However, Individuals J and K do not have any of the relationships to each other described in section 152(d)(2)(A)-(H) of the Code. . A related IRS release-2021. Notice 2021-20 explained that under Code Sec. <>/Metadata 923 0 R/ViewerPreferences 924 0 R>> Other special topics include the definition of full-time employees for purposes of the ERC (full-time equivalents need not be included in determining whether an employer is large or small, and the notice notes that full-time status is irrelevant to identifying qualifying wages); treatment of tips as qualified wages (included, if treated as wages under Sec. Answers 56, 57, and 58 also contain information on interaction with the PPP. 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. Prior Ropes & Gray LLP coverage of ERCs includes alerts on the CARES Acts tax-related provisions, initial ERC guidance, CAAs tax-related provisions, and ARPAs tax-related provisions. Purpose II. 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. %PDF-1.6 % 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. us that we represent you (an engagement letter). 199 0 obj <> endobj (Answer 70.) 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, gtag('config', 'G-LH75ZGWFY2'); The Internal Revenue Service (IRS) issued Notice 2021-23 on April 2, 2021, for employers claiming the employee retention tax credit (the ERTC) under the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act), as modified by the Taxpayer Certainty and Disaster Tax Relief Act of 2020 (the Relief Act). For the first two quarters of 2021, the maximum per-employee qualified wages that may be taken into account increase to $10,000 per quarter. As amended by Section 207 of the Disaster Relief Act, the ERC is 70% of qualified wages (including qualified health plan expenses) that an eligible employer pays in a calendar quarter (for a maximum total credit of $14,000 for the first two quarters of 2021). The rules for determining qualified wages provided in Section III.G. DETAIL. Questions 23-28. 145 0 obj <>stream 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 gross receipts test is modified such that employers whose gross receipts in either the first or second calendar quarter of 2020 are less than 80% (up from 50% for ERTCs claimed in 2020) of their gross receipts for the same calendar quarter in 2019 are eligible for the ERTC. endstream endobj 147 0 obj <>stream A non-exhaustive list of modifications include limiting occupancy to provide for social distancing, requiring appointments for service instead of walk-in service, changing the format of service, and requiring employees and customers to wear face coverings. 1 0 obj The IRS then issuedNotice 2021-23 as guidance concerning the employee retention credit for qualified wages paid for the first two quarters of 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. You don't need to read the first 16 pages, however, there are some definitions to terms that show up throughout the 102 page notice that might be helpful. The Relief Act removed the term qualified health plan expenses from the definition of qualified wages under section 2301(c)(3) of the CARES Act and included health plan expenses as part of the definition of wages in section 2301(c)(5) of the CARES Act. 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. As amplified by Notice 2021-49, the rules set out in Notices 2021-20 and 2021-23, which provided guidance under the ERC as enacted by the Coronavirus Aid, Relief, and Economic Security (CARES) Act, P.L. Similarly, although the statute does not specifically state that recovery startup businesses may be treated as small eligible employers (those with 500 employees or fewer), the notice provides that Treasury and the IRS have concluded it is appropriate to read the small eligible employer rule in Sec. Notice 2021-20 specifies the records that employers should maintain to substantiate eligibility for the credit. Claiming the Employee Retention CreditQuestion 50-58K. D+i j@NZsF@;dN4 ZHz&=O&2~$U{Xj"&3x^h2 uOZo7FiY2||8-eE*uI%db:1MjX:v\F_oDi4h For large employers, qualified wages are wages (including qualified health plan expenses) paid to an employee who is "not providing services" due to the operational suspension or the decline in gross receipts. 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. Eligible EmployersQuestions 1-6B. The guidance does not exclude the forgiveness of a PPP loan or other federal or state government grants to businesses from gross receipts. On December 27, 2020, the Consolidated Appropriations Act, 2021 was enacted, which included the Disaster Relief Act. L. 1172 (March 11, 2021). It incorporated most of the FAQs from the IRS website and addressed the retroactive ERC amendments made by Section 206 of the Disaster Relief Act. Partial Suspension of Operations The employee retention credit does not apply to the qualified wages for which the election or deemed election is made. in a matter where that information could and will be used against you. The credit is equal to 50% of qualified wages paid, including qualified health plan expenses, for up to $10,000 per employee in 2020. An RSB is an employer: Pursuant to the Notice, for purposes of determining whether the first requirement is met, an RSB is not deemed to have begun a trade or business until such time as the business has begun to function as a going concern and performed those activities for which it was organized. Additionally, the Notice clarifies that tax-exempt entities can be eligible as RSBs, the RSB determination is made on a quarterly basis (regarding whether the employer is otherwise eligible under the Gross Receipts or Suspension Tests), and the aggregation rules that otherwise apply to the ERC apply when making that determination. Please see below for more detailed information on how to participate. Notice 2021-23 explains that additional guidance will be published regarding the ARPA ERCs. The credit was created by the Coronavirus Aid, Relief, and Economic Security (CARES) Act, P.L 116-136, and amended by the Consolidated Appropriations Act, 2021, P.L 116-260. All rights reserved. Section II.A. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. 3 0 obj All rights reserved. 3134(c)(3)(A)(ii)(II) as if it applies to recovery startup businesses. Certain FAQs were later modified, and new FAQs were added over time. The Notice provides that cash tips received by an employee in a given calendar month amounting to $20 or more can be treated as qualified wages for ERC purposes assuming the other requirements are met. ), Notice 2021-20 formalizes prior guidance explaining that business operations can be partially suspended if a workplace is closed for certain purposes but may remain open for other purposes, and the modification of business operations has more than a nominal effect . Notice 2021-23 provides the following key rules for the ERTC program for wages paid after December 31, 2020 through June 30, 2021: In addition to the specific issues discussed above, Notice 2021-23 includes further discussion of the rules for ERTCs claimed for the first two calendar quarters of 2021. the ACCEPT button if you understand and accept the foregoing statement and wish In March, the IRS issued Notice 2021-20, to address changes made to the ERTC by Section 206 of the Disaster Tax Relief Act. Despite the extension of the ERTC through the third and fourth quarters of 2021 under the American Rescue Plan Act of 2021 (the Rescue Plan Act), Notice 2021-23 does not apply to ERTCs for wages paid during the third and fourth quarters of 2021, and the IRS will issue further guidance for such periods. Employers claiming ERTCs may reduce their required employment tax deposits for the first two calendar quarters of 2021 to access ERTCs for which they are eligible. Learn more by downloading this comprehensive report. These modifications allow remuneration paid by governmental employers to constitute qualified wages for the ERC, notwithstanding that the remuneration may not constitute wages for purposes of IRC Section 3121. xYnF}7Graxm@c;Nv&`y)J&5"eSU}!%pfXxtSy~\m^dn3{$?llq~CS/EX-,Ug>9~>?~;? Example 3: Corporation C is owned 100 percent by Individual J.Corporation C is an eligible employer with respect to the first calendar quarter of 2021. The determination should be documented and payroll systems enabled to capture any expenses eligible for the credit. One change under the ARPA rules for the ERC under Sec. Maximum Amount of Employers Employee Retention CreditQuestion 29G. An eligible employer that pays qualified wages is entitled to claim the employee retention credit against the taxes imposed on employers by section 3111(a) of the Internal Revenue Code (Code) (employers share of the Old Age, Survivors, and Disability Insurance (social security tax)), after these taxes are reduced by any credits claimed under section 3111(e) and (f) of the Code,3 sections 7001 and 7003 of the Families First Coronavirus Response Act (FFCRA), Pub. 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. endstream endobj startxref 2 0 obj That is not otherwise eligible under the Gross Receipts or Suspension Tests. Alipay Portal Help Center Upgrade Notice. )Tr`h```h` 28@$CPak*5@yn>I=i*bH@7U00@LZaC&=US 4 of Notice 2021-20 are generally applicable to ERTCs for the first two calendar quarters of 2021. endstream endobj 200 0 obj <. H. Allocable Qualified Health Plan Expenses. When the IRS issues FAQs, it does so to provide taxpayers clarity and certainty, pursuant to a March 2019 Treasury policy statement. 4 0 obj Whose average annual gross receipts over a certain period do not exceed $1M. Individual G is an employee of Corporation B, but Individual H is not. gtag('js', new Date()); An employer can elect to use its gross receipts from the immediately preceding calendar quarter to determine whether it is an SFDE. 501(a) and (c) may qualify for the ERC) does not specifically provide that these organizations can be an eligible employer due to being a recovery startup business, the IRS and Treasury have determined it is appropriate to treat them as eligible employers if they meet the requirements to be a recovery startup. Specifically, Notice 2021-23 clarifies rules for employers claiming ERTCs for wages paid after December 31, 2020 through June 30, 2021, and expands on prior guidance provided by the IRS in Notice 2021-20. <>/ExtGState<>/ProcSet[/PDF/Text/ImageB/ImageC/ImageI] >>/MediaBox[ 0 0 612 792] /Contents 4 0 R/Group<>/Tabs/S/StructParents 0>> Eligible employers may now claim ERTCs equal to 70% of qualified wages paid to an employee. Additionally, the "more than nominal" concept is introduced as a way to analyze whether an impact to one portion of an essential business is sufficient to suspend the larger essential business. Notice 2021-20 provides a new safe harbor for what is to be considered more than [] nominal: if the gross receipts from that portion of the business operations is not less than 10% of the total gross receipts (both determined using the gross receipts of the same calendar quarter in 2019), or if the hours of service performed by employees in that portion of the business is not less than 10% of the total number of hours of service performed by all employees in the employers business (both determined using the number of hours of service performed by employees in the same calendar quarter in 2019). The Agreement awarded through this RFP process will replace the current Third-Party administrator service Agreement for the Savings Plus Program (Savings Plus . IR -165 (August 4, 2021) briefly explains that Notice 2021-49 addresses changes made by the American Rescue Plan Act of 2021to the employee retention credit. NOTICE. F. Maximum Amount of Employer's Employee Retention Credit. IRS notices provide greater legal authority than do IRS FAQs. The Internal Revenue Service ("IRS") issued Notice 2021-23 on April 2, 2021, for employers claiming the employee retention tax credit (the "ERTC") under the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"), as modified by the Taxpayer Certainty and Disaster Tax Relief Act of 2020 (the "Relief Act"). Aggregation RulesQuestions 7-9C. For small employers, qualified wages are wages (including qualified health plan expenses) paid to any employee during the period operations were suspended or the period of the decline in gross receipts, regardless of whether its employees are providing services. On April 29, 2020, the IRS posted over 90 ERC FAQs on its website. Questions 30-39. Also, the notice states that although Sec. Thompson Coburn LLP continues to monitor these important developments in the CARES Act and other Federal relief efforts. Notice 2021-23 was subsequently issued with guidance concerning the employee retention credit for qualified wages paid for the first two quarters of 2021. The Notice deems a portion of the business operations to be more than nominal if either: The gross receipts from that portion of the business operations is at least 10% of the total gross receipts (both determined using the gross receipts of the same calendar quarter in 2019), The hours of service performed by employees in that portion of the business is at least 10% of the total number of hours of service performed by all employees in the employer's business (both determined using the number of hours of service performed by employees in the same calendar quarter in 2019). <> 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. 206 0 obj <>/Filter/FlateDecode/ID[<92C12BE1DDD12D4C93BD9798762F6FE7><7ED67C34B5C8EC419FF6756571D33361>]/Index[199 11]/Info 198 0 R/Length 55/Prev 149074/Root 200 0 R/Size 210/Type/XRef/W[1 2 1]>>stream We encourage you to reach out to your Baker Tilly advisor regarding how any of the above may impact your situation. The key exception to this is the hours lookback rule applicable to large employers set forth in Notice 2021-20. . in December 2020, but class started in January 2021, this payment would show on the 2021 T2202 form. Notification on POSM Supply During Chinese New Year. Interaction with Paycheck Protection Program (PPP) LoansQuestion 49J. Powered by Help Scout. The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organization. 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. L. No. On April 2, the IRS issued Notice 2021-23, which expands on the guidance provided in Notice 2021-20 by addressing the changes made to the ERTC by Section 207 of the Disaster Tax Relief Act. Notice 2021-20, released on March 1, 2021, provided guidance on qualified wages paid in 2020. 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. As originally enacted, the CARES Act prohibited employers that received PPP loans from claiming the ERC. Specifically, Notice 2021-23 clarifies rules for employers claiming ERTCs for wages paid after December 31, 2020 through June 30, 2021, and expands on prior guidance provided by the IRS in Notice 2021-20. Allocable Qualified Health Plan ExpensesQuestions 40-48I. r}"wc_cHO^$ Xb&5`{3hD]fU;@XjY l 700-20-01, on July 1, 2021, to obtain proposals for the Third-Party Administration Services. 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. Timing of the Deduction Disallowance. Notice 2021-23 incorporates the changes made by Section 207 of the Disaster Relief Act and applies to qualified wages paid in the first two quarters of 2021. (Answer 57.). The new accounting standard provides greater transparency but requires wide-ranging data gathering. The employer is deemed to make the election for any qualified wages included in the amount of payroll costs on the PPP Loan Forgiveness Application. 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. to proceed. The Journal of Accountancy is now completely digital. This quick guide walks you through the process of adding the Journal of Accountancy as a favorite news source in the News app from Apple. The IRS provides employers with guidance regarding documentation requirements for substantiating eligibility for ERCs, which employers should follow closely. 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 By Isabelle Farrar, Alec Oveis, and Joshua Thomas. Governmental OrdersQuestion 10D. Edward Buchholzis a member of Thompson Coburn LLPs Tax Group. 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. All rights reserved. Isabelle Farrar is an attorney in Ropes & Gray LLPs Boston office. The limitations on receiving advance payments (Form 7200) are not likely to affect many employers, as that seems to have been the least common way employers have chosen to access the ERC. 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).