The Internal Revenue Service (IRS) and Treasury Department released additional guidance on the Employee Retention Tax Credit (ERC) and a safe harbor on gross receipts to help employers claiming the credit in the third and fourth calendar quarters of 2021.
This update dives into the guidance issued on August 4th and provides information on the gross receipts safe harbor published August 10th.
Changes made to the ERC by the American Rescue Plan Act of 2021 (ARPA) and how they apply to the third and fourth quarters of 2021 are addressed in Notice 2021-49. This notice amplifies prior guidance issued in Notice 2021-20 and Notice 2021-23.
The changes made by the ARPA include the following:
The recent notice also provides guidance on other elements (in addition to the ARPA) of the ERC for both 2020 and 2021. According to the IRS website, this guidance aims to provide clarity on the ERC and provides updates on the following:
Eligible employers may report total qualified wages and related health insurance costs for each quarter on their employment tax returns (i.e., Form 941) for the related period.
The IRS and Treasury Department issued a safe harbor allowing employers to exclude applicable items from their gross receipts to determine eligibility for the ERC.
Revenue Procedure 2021-23 states the safe harbor allows employers to exclude certain amounts from gross receipts to determine eligibility for the credit. The excludible items are:
This update requires employers to exclude the amounts from their gross receipts for each calendar quarter since gross receipts are relevant to determining eligibility to claim the ERC. As a result, when claiming the credit, the employer must also apply the safe harbor to all employers treated as a single employer under the aggregation rules.
Revenue Procedure 2021-23 applies to wages paid after March 12, 2020 and before January 1, 2022.
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