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IRS Provides Retroactive Guidance on Employee Retention Credit for 2020, Certain PPP Loan Recipients May Apply

By March 14, 2021March 17th, 2021Payroll

On March 1, the IRS issued much needed guidance (via Notice 2021-20) for employers attempting to claim the employee retention credit under the CARES Act (signed March 27, 2020), as modified by the Taxpayer Certainty and Disaster Tax Relief Act of 2020 or the RELIEF Act (signed December 27, 2020).

The guidance clarifies what most already knew is that for 2020, the employee retention credit can be claimed by employers who paid qualified wages after March 12, 2020, and before January 1, 2021, and who experienced a full or partial suspension of their operations or a significant decline in gross receipts. The credit is equal to 50 percent of qualified wages paid, including qualified health plan expenses, for up to $10,000 per employee in 2020. The maximum credit available for each employee is $5,000 in 2020.

The significant change made by the RELIEF Act permits eligible employers who received a Paycheck Protection Program (PPP) loan to claim the employee retention credit.

It is important to note that the same wages cannot be counted both for seeking forgiveness of the PPP loan and calculating the employee retention credit. The 102-page notice further details when and how employers that received a PPP loan can claim the employee retention credit for 2020 but we’re encouraging employers to seek the advice of their tax advisor.

Take Note: While the Relief Act also extended and modified the employee retention credit for the first two calendar quarters in 2021, the March 1 guidance addresses only the rules applicable to 2020. Sit tight while we await promised additional guidance addressing the changes for 2021 to be delivered by the IRS soon.