On August 4, 2021 the IRS issued notice 2021-49 providing additional guidance in regards to the Employee Retention Credit (ERC).
The good news is that one of the new provisions extends the ability to claim the ERC credit on eligible wages for the 3rd and 4th payroll quarters of 2021.
The notice also defines what a recovery startup businesses is and how eligible businesses may qualify for the ERC credit. As long as your start-up business began operations on or after 02/15/2020 and your average annual gross receipts was less than $1,000,000, then you may qualify for the ERC.
Another provision listed in the notice answers the question of whether shareholder wages are eligible for the ERC. In an unanticipated decision, the IRS decided that wages paid to major shareholders and their related parties do not qualify for the ERC. There has been pushback on this decision and we await further clarification. We recommend starting in the 3rd quarter of 2021, no credit should be taken on the ineligible wages.
If you are a large employer with more than 500 full time employees and your business is either fully or partially suspended due to COVID-19 or you experienced a 90 percent decline in gross receipts for the same quarter compared to 2019, you are eligible to claim the ERC for both employees who are performing services and those employees that were not performing services.
The notice also provides that all ERC credit amounts received, must offset your payroll tax expense for the year the employee retention credit was claimed. For example, if you received $10,000 as an employee retention credit for the 1st quarter of 2021, you must offset that $10,000 amount to your payroll tax expense/liability account on your general ledger.
We know that some of the provisions pertaining to the employee retention credit can be confusing, however we here at Diapoules & Feinstein CPA P.C. are here to help guide you in the right direction.
Feel free to contact us at 631-547-1040 or send us an email at firstname.lastname@example.org with any questions. Thank you