August 8, 2021 IRS provide additional guidance to employers claiming the Employee Retention Credit, including for the third and fourth quarters of 2021
Under the new notice, an ERC may be claimed by an eligible employer for qualified wages paid in the third and fourth calendar quarters of 2021. An eligible employer is an employer carrying on a trade or business (1) whose trade or business’s operation is fully or partially suspended due to orders from a governmental authority limiting commerce, travel, or group meetings due to COVID-19; (2) that experiences a decline in gross receipts (as defined in Notices 2021-20 and 2021-23); or (3) is a recovery startup business.
A recovery startup business is an employer that (1) is not otherwise an eligible employer under conditions (1) or (2) of the preceding sentence; that (2) began carrying on a trade or business after Feb. 15, 2020; (3) with average annual gross receipts for the three tax years preceding the quarter in which it claims the credit of no more than $1 million (with rules under Sec. 448(c)(3) for their calculation if the entity has not been in existence for three years and by reference to the entity’s predecessor).
One change under the ARPA rules for the ERC under Sec. 3134 is that, for the third and fourth quarters of 2021, eligible employers claim the credit against the employer’s share of Medicare tax (or equivalent portion of Tier 1 tax under the Railroad Retirement Tax Act) rather than, as previously, against the employer’s share of Social Security tax (or its equivalent Railroad Retirement Tax Act portion).
Although the limit on the maximum ERC in the first half of 2021 of 70% of up to $10,000 of an employee’s qualified wages per calendar quarter (i.e., $7,000) continues to apply to the third and fourth calendar quarters of 2021, the notice notes that a separate credit limit of $50,000 per calendar quarter applies to recovery startup businesses (after application of the $10,000 wage limit).
For further assistance with ERC Tax Credits, call WOTC.com at 212-635-9500.