Employee Retention Credit
The Infrastructure Investment and Jobs Act, (H.R. 3684) passed the Senate by a vote of 69–30 and now goes to the House of Representatives for consideration. The infrastructure bill would end the employee retention credit (ERC) early, making wages paid after Sept. 30, 2021, ineligible for the credit (except for wages paid by an eligible recovery startup business). Additionally, the IRS issued Notice 2021-49 Wednesday providing additional guidance regarding claiming the Employee Retention Credit (ERC) for employers who pay qualified wages after June 30, 2021, and before January 1, 2022. Some important updates from the Notice are below:
Recovery startup businesses
- Are businesses that began operations after February 15, 2020, whose average annual gross receipts for a three-taxable-year period ending with the taxable year which precedes such quarter does not exceed $1,000,000, and
- Experiences a full or partial suspension of operations due to a governmental order or experiences significant gross receipts decline.
- A spokesperson for the IRS clarified that if a business is a recovery startup business and a small eligible employer, it may treat all wages paid to an employee during the quarter as qualified wages. Further, aggregation rules do apply in determining whether a business is a recovery startup business. Finally, the IRS has determined it is appropriate for a tax-exempt (Code Sec. 501(c)) organization to qualify as a recovery startup business if it meets all requirements.
Timing of qualified wages deduction disallowance
- The IRS clarified that when a taxpayer claims a retroactive credit to a retroactive adjustment such as eligibility of PPP borrowers to claim the ERC or files an amended employment tax return to claim the ERC, the taxpayer should file an amended federal income tax return or administrative adjustment request (AAR), if applicable, for the taxable year in which the qualified wages were paid or incurred to correct any overstated deduction taken for those same wages on the original return.
- To satisfy this tracing requirement, the taxpayer must file an amended return or AAR, as applicable.
- The ERC generally tests the size of the employer using a monthly average in 2019, and for this purpose, it counts only full-time employees. It was unclear whether the rules counted only full-time employees, or whether it also included full-time equivalents, like the PPP. The Notice clarifies that it includes only full-time employees, meaning those employees that work 30 hours/week or 130 hours/month. The Notice also confirmed that once an employer qualifies for the ERC, qualified wages include those paid to all employees, not just full-time employees.
- The Notice confirms that the same tips that are treated as wages may be used to support the ERC and the tip credit under §45B.
- The availability of ERCs for wages paid to owner-employees and their spouses depends on whether they have other family members who are treated as owners under the IRC Section 267(c) attribution rules.
SVOG – Shuttered Venue Operator Grant
The U.S. Small Business Administration (SBA) announced Wednesday that it would accept new SVOG applications until 11:59 p.m. PT on Aug. 20. Additionally, announced, in accordance with the enacted legislative text, they would consider requests for supplemental SVOGs for 50% of the original award amount. The maximum award amount is still set at $10M and additional details to apply will be released later this month. Please contact us with any questions.
We have had a dedicated team in place for over a year working to ensure our clients are securing the maximum amount of eligible relief while complying with the cross eligibility rules of COVID19 relief programs. If you are interested in a complimentary phone call to discuss your eligibility for or questions on any of the COVID19 relief programs, please email firstname.lastname@example.org with your information.