Further guidance has also been issued on miscellaneous issues that apply to the employee retention credit in both 2020 and 2021. Notice 2021-49 amplifies prior guidance regarding employee retention credit provided in Notice 2021-20 and Notice 2021-23. The new notice covers changes made by the American Rescue Plan Act of 2021 (ARP) to employee retention credit, applicable to the third and fourth quarters of this year.
Those changes, among other things, include:
- Making the credit available to eligible employers that pay qualified wages after 30th June 2021, and before 1st January 2022
- Expanding the definition of eligible employer to include "recovery start-up 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 under section 324 of the Economic Aid to Hard-Hit Small Businesses, Non-Profits, and Venues Act, or a restaurant revitalization grant under section 5003 of the ARP
The notice also provides guidance on several miscellaneous issues with respect to the employee retention credit for 2020 and 2021. This guidance responds to various questions that the Treasury Department and the IRS have been asked about the employee retention credit, including:
- The definition of full-time employee and whether that definition includes full-time equivalents
- The treatment of tips as qualified wages and the interaction with the section 45B credit
- The 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
Employers who are eligible will report their total qualified wages and the related health insurance costs for each quarter on their employment tax returns for the applicable period. Certain employers may receive an advance payment from the IRS if a reduction in the employment tax deposits is not sufficient to cover the credit. This is done by submitting Form 7200, Advance Payment of Employer Credits Due to Covid-19.
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