Below is a comparative table highlighting the differences between the ERC rules for calendar quarters in 2020 and 2021. IRS Notice 2021-49 clarified that Recovery Startups can use all salaries of qualified employees for the purposes of the loan, regardless of the number of employees. It should also be noted that the determination of the application of this category is assessed for each quarter. So, if one of the other two categories – decrease in gross revenue or total or partial suspension – applies to Q3 but not to Q4, it would not be the beginning of a recovery in Q3, but they can still be considered the beginning of a recovery in Q4. To determine eligibility based on a decrease in gross revenue, employers may use another quarter to calculate gross revenue.4 As part of this election, an employer can determine whether the decrease in gross revenue for a calendar quarter in 2021 is satisfied by comparing its gross revenue from the previous calendar quarter with that of the corresponding calendar quarter in 2019. For example: the loan remains at 70% of eligible salary up to a maximum of $10,000 per quarter, or a maximum of $7,000 per employee per quarter. For example, an employer could claim $7,000 per quarter per employee, or up to $21,000 for 2021, after the passage of the Infrastructure Investment and Employment Act changed the program`s end date to September 30, 2021 for most businesses. However, takeover start-ups are still eligible for ERTC until the end of the year. A takeover start-up is a business that started after February.
15, 2020 and typically averages $1 million or less in gross revenue. You may be eligible to take out a loan of up to $50,000 for the third and fourth quarters of 2021. On March 1, 2021, the IRS issued Notice 2021-20, which provides guidance to employers claiming the Employee Retention Tax Credit. However, the notice only provides guidance for the loan, as it applies to eligible wages paid between March 12, 2020 and September 30, 2021, which is the new program end date for most businesses. In addition, most of the notice reiterates the ERTC FAQ previously published on the IRS website. On Tuesday, August 10, 2021, the IRS released Tax Procedure 2021-33, which provides a safe harbor rule, whereby an employer can exclude the forgiveness amount of a PPP loan and the amount of a closed site operator grant or restaurant revitalization fund grant from the definition of gross revenue just to determine eligibility for the ERTC. Employers must apply the safe harbor uniformly across companies. Employers can access the T1 and Q2 2021 ERC before filing their payroll tax return by reducing payroll contributions. Small employers (i.e. employers with an average of 500 full-time employees or fewer in 2019) can request an initial loan payment (subject to certain limits) on Form 7200, advance on employer loans due to Covid-19, after reduced deposits. In 2021, no advances are available for large employers.
For 2021, the threshold will be increased to 500 full-time employees, meaning that if you have more than 500 employees, you can only use the ERC for those who do not provide services. If you have 500 employees or fewer, you can apply for the CEE for everyone, whether they work or not. One change under the ARPA rules for the ERC under Section 3134 is that for the third and fourth quarters of 2021, eligible employers will claim the credit on the employer`s share of the Medicare tax (or an equivalent portion of the Tier 1 tax under the Railroad Retirement Tax Act) and not on the employer`s share of the Social Security tax (or the equivalent portion of the Railway Pension Tax Act). Employers (and not Recovery Startup Business) who have requested and received an initial payment from the ERTC for wages paid in the fourth quarter of 2021 must repay the advances by the due date of the applicable payroll tax return, which covers the fourth quarter of 2021. The advances result from the filing of Form 7200, Prepayment of Employer Loans Due to COVID-19. For more information, employers can consult the instructions for the applicable tax form. The IRS on Wednesday issued Notice 2021-49 which provides guidance on extending and amending employee retention credits (ERCs) under Section 3134, added by the American Rescue Plan Act (ARPA), P.L. 117-2. The announcement expands the 2021-2020 and 2021-23 communications (see also “IRS Publishes Guidelines on Employee Retention Credit” and “How to Claim Employee Retention Credit for the First Half of 2021”) with additional guidance on the use of the ERC during the third and fourth calendar quarters of 2021.