August 9, 2021 – WASHINGTON – The Treasury Department and the Internal Revenue Service have released new guidelines on employee retention credit, including guidelines for employers who pay qualified wages after June 30, 2021 and before January 1, 2022, and additional guidance on various matters that apply to employee retention credit in 2020 and 2021. Notice 2021-49amplifies previous guidance regarding employee retention credit provided in Advisory 2021-20 and Notice 2021-23 .
Advisory 2021-49 addresses changes made by the American Rescue Plan Act of 2021 (ARP) to employee retention credit that are applicable to the third and fourth quarters of 2021.
These changes include, among others:
- make the credit available to eligible employers who pay eligible wages after June 30, 2021 and before January 1, 2022,
- broaden the definition of eligible employer to include “take-over start-ups”,
- modify the definition of eligible wages for “employers in serious financial difficulty”, and
- provided that the employee retention credit does not apply to eligible salaries taken into account as salary costs under a closed site subsidy under section 324 of the Economic Aid Act to small businesses, nonprofits and hard-hit sites, or a restaurant revitalization grant under section 5003 of the ARP.
Advisory 2021-49 also provides guidance on several miscellaneous matters regarding employee retention credit for 2020 and 2021. These guidelines answer various questions posed to the Treasury Department and the IRS regarding employee retention credit. , especially :
- The definition of full-time employee and if this definition includes full-time equivalents,
- The treatment of tips as eligible wages and the interaction with Section 45B credit,
- The timing of the denial of the eligible salary deduction and whether taxpayers who have already filed an income tax return must amend this return after claiming the credit on an adjusted income tax return, and
- Whether wages paid to majority owners and their spouses can be treated as eligible wages.
Eligible employers will report their total qualified salaries and corresponding health insurance costs for each quarter on their 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, some employers may receive an advance payment from the IRS by submitting Form 7200, Prepayment of Tax Credits. employer due to COVID-19.
Where can I find more information on employee loyalty credit and other economic aid efforts related to COVID-19?
The Treasury and IRS continue to closely monitor current legislation regarding employee retention credit and will provide additional information as needed.
Updates on the implementation of this employee retention credit, frequently asked questions about tax credits for required paid time off, and other information can be found on the Coronavirus page of IRS.gov.