IRS Guidance on ERC for Last Half of 2021

The IRS announced it has issued Notice 2021-49 to clarify the rules of the employee retention credit (ERC) as extended for the third and fourth quarters of 2021.  Thomson Reuters has summarized the guidance provided in this notice, which at a high level include:

• claiming the credit against the employer’s share of Medicare taxes for the third and fourth quarters of 2021 (previously employers claimed against their share of Social Security taxes)
• allowing “startup recovery businesses” to be eligible
• modifying the definition of qualified wages for “severely financially distressed employers”
• inapplicability in connection with a shuttered venue grant under section 324 of the Economic Aid to Hard-Hit Small Businesses, Non-Profits, and Venues Act, or a restaurant revitalization grant under section 5003 of the ARP
• defining full-time employee and clarifying whether that includes full-time equivalents
• addressing tips and interaction with the section 45B credit
• timing of the qualified wages deduction disallowance and whether taxpayers that already filed an income tax return must amend that return after claiming the credit on an adjusted employment tax return
• addressing wages of majority owners and their spouses

The IRS notes the ERC may be restricted to just startup recovery businesses for the fourth quarter under infrastructure legislation like the INVEST in America Act (HR 3684) which passed the House.  They’ll keep an eye on whether the ERC is ultimately changed by Congress.

IMA will continue to monitor regulator guidance and offer meaningful, practical, timely information.

This material should not be considered as a substitute for legal, tax and/or actuarial advice. Contact the appropriate professional counsel for such matters. These materials are not exhaustive and are subject to possible changes in applicable laws, rules, and regulations and their interpretations.