The employee retention credit (ERC) is a new credit created in the Coronavirus Aid, Relief, and Economic Security (CARES) Act passed in March 2020 and later modified with subsequent legislation.
Tax preparers and their clients have been anticipating updated guidance on several remaining questions related to the ERC. On August 4, the IRS issued Notice 2021-49 and accompanying IR-2021-165. Further, on August 10, the IRS issued Rev. Proc. 2021-33, which provides a safe harbor permitting employers to exclude certain amounts from gross receipts solely for purpose of determining eligibility for the ERC.
Notice 2021-49 provides guidance on the ERC provided under Sec. 3134 of the Internal Revenue Code, as added by Sec. 9651 of the American Rescue Plan Act of 2021, and applies to qualified wages paid after June 30, 2021, and before Jan. 1, 2022. The notice amplifies Notices 2021-20 and 2021-23 with additional guidance on claiming the ERC in the third and fourth calendar quarters of 2021 as well as guidance on several miscellaneous ERC concerns.
In this Tax Section Odyssey episode, April Walker, CPA, CGMA, Lead Manager — Tax Practice & Ethics, Association of International Certified Professional Accountants, representing AICPA & CIMA, and Kristin Esposito, CPA, MST, Director — Tax Policy & Advocacy, Association of International Certified Professional Accountants, representing AICPA & CIMA, dissect the latest guidance.
What you’ll learn in this episode
- Are wages of >50% shareholders and their spouses are considered qualified wages? (2.25)
- The calculation of gross receipts and a discussion on how Paycheck Protection Program (PPP) loans and other COVID-19 relief programs are incorporated (3.56)
- Are cash tips considered qualified wages? (5.25)
- The use of full-time employees or full-time equivalents in the determination of whether a business is a small or a large-eligible employer and the period for this calculation (5.53)
- Timing of the wage deduction disallowance (7.11)
- Determination of eligible employer status clarification for the 2021 credit (9.06)
- Recovery startup business overview (9.58)
- What is a severely financially distressed employer? (11.55)
- Potential legislative impacts to the ERC (13.27)
AICPA resources
- Employee retention credit guidance and resources — The ERC is an important of the COVID-19 relief legislation for small businesses. This library provides the ins and outs of calculating this credit.
- AICPA Town Hall Series — Bi-monthly, high-impact news broadcast series that delivers the latest news, analysis, insights and practical guidance to accounting and finance professionals and responds to pressing issues facing the profession
- Challenges with contingency fees and the ERC — Explore the prospect of contingent fees for ERC work and how regulatory rules govern its usage with the AICPA’s April Walker and Ed Karl on this Tax Section Odyssey episode from June 2021.
- What to know about the 2021 ERC before April 30 — On this April 2021 Tax Section Odyssey episode, Jan Lewis, CPA, with Haddox Reid CPAs & Advisors, reviews the latest ERC guidance and important information to help your clients benefit from this credit.
- PPP and ERC in 2020 — This Tax Section Odyssey episode from March 2021 reviews the IRS Notice 2021-20 and highlights what you need to know about the interaction between the ERC and PPP.
- Breaking down the employee retention credit – This February 2021 Tax Section Odyssey episode contains a deep dive on the calculation of the ERC.
Other resources
- FAQs: Employee Retention Credit under the CARES Act — IRS answers to frequently asked questions on the ERC
- Rev. Proc. 2021-33 provides a safe harbor that permits a taxpayer to exclude certain items from “gross receipts” under Sec. 448(c) and Sec. 6033, as applicable, solely for purposes of determining eligibility to claim the ERC
- Notices 2021-20 — Guidance for employers claiming the ERC for calendar quarters in 2020
- IRS Notice 2021-23 — Guidance on the ERC under the CARES Act for the first and second calendar quarters of 2021
- Notice 2021-49 — Guidance that amplifies Notices 2021-20 and 2021-23 by providing additional guidance on claiming the ERC in the third and fourth calendar quarters of 2021.
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