Changes to employee retention credit leave practitioners with questions

The IRS recently posted instructions on its website Explaining how taxpayers who have not obtained their Paycheck Protection Program (P3) loan cancellation can apply for the Employee Retention Credit (ERC) when they file their employment income tax return. However, the guidelines only concern the situation in which the employer has been refused the PPP pardon; it does not address the broader question of how reporting wages as wage costs on a previously filed PPP loan forgiveness request will affect an employer’s ability to claim CRE for wages that were included in a previously filed PPP loan forgiveness request. loan forgiveness request, but that did not affect the loan forgiveness amount.

In guidance posted on its website, the IRS indicates that if an employer received a P3 loan and included wages paid in the second and / or third quarter of 2020 as salary costs to support a loan forgiveness request , instead of claiming the ERC for these salaries, and whose pardon request has been denied, he can claim the ERC for these qualified salaries on his Form 941 for the fourth quarter of 2020, Employer’s Quarterly Federal Income Tax Return.

The IRS says this is also where employers report any ERC attributable to health care expenses that are qualifying salaries that were not included on their second and / or third quarter Form 941. The IRS has instructions to find out how to claim the credits on the form.

In IR-2021-21, the IRS explains how the CER was extended and changed by year-end legislation.

The 2021 consolidated appropriation law, PL 116-260, extends the CARES law (aid, relief and economic security) against the coronavirus, PL 116-136, ERC until June 30, 2021. It also extends the ERC and provides technical corrections. Extensions of credit include:

  • An increase in the credit rate from 50% to 70% of the qualified salary;
  • An increase in the eligible salary limit per employee from $ 10,000 for the year to $ 10,000 for each quarter;
  • A reduction in the gross revenue required from one year to the next, from 50% to 20%;
  • A safe harbor allowing employers to use the gross receipts of the previous quarter to determine eligibility;
  • A provision allowing certain government employers to claim the credit;
  • An increase from 100 to 500 in the number of employees counted when determining the relevant qualified salary base; and
  • Rules allowing new employers who did not exist for all or part of 2019 to be able to claim the credit.

The new provision that employers who receive PPP loans may still be eligible for ERC with respect to wages that are not paid with the remitted PPP proceeds has raised questions about how the reporting of wages in as salary costs on a previously filed PPP loan forgiveness request will affect an employer’s ability to claim CRE for salaries included in a loan forgiveness request, but which did not impact the loan forgiveness amount As reported earlier, the AICPA sought advice from the IRS and the Treasury, providing that filing a request for a PPP loan forgiveness does not constitute an election to waive the ERC with respect to the amount of wages reported on the demand exceeding the amount of wages necessary for the forgiveness of the loan. .

Accounting firms can prepare and process PPP applications on the CPA business financing portal, created by AICPA, CPA.com and fintech partner Biz2Credit.

AICPA experts discuss the latest PPP programs and other small business support programs at a virtual town hall every two weeks. The webcasts, which provide CPE credits, are free to AICPA members. To go to the AICPA Town Hall Series web page for more information and to register.

Sally P. Schreiber, JD, ([email protected]) is a JofA editor-in-chief.

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