How Employers Can Claim the Employee Retention Credit for 2021

There is new guidance from the IRS for employers claiming the Employee Retention Credit for the first and second quarters of 2021.

PPPNotice 2021-23 states that eligible employers can claim a refundable Employee Retention Credit against the employer share of Social Security tax equal to 70% of the qualified wages they pay to employees after December 31, 2020, through June 30, 2021. Qualified wages are limited to $10,000 per employee per calendar quarter in 2021. Thus, the maximum employee retention credit available is $7,000 per employee per calendar quarter, for a total of $14,000 for the first two calendar quarters of 2021.

For 2021, an employer is eligible for the tax credit if it was carrying on a trade or business during the calendar quarter for which the credit is determined, and either:

  1. had operations that were fully or partially suspended during the calendar quarter due to governmental orders limiting commerce, travel, or group meetings due to COVID-19, or
  2. experienced a decline in gross receipts for the calendar quarter based on an 80% threshold compared to the same calendar quarter in 2019.

Expanded eligibility

Eligible employers now include tax-exempt organizations described in Code Sec. 501(c)(1), and to any governmental entity that is a college or university or whose principal purpose is providing medical or hospital care.

Qualified wages

For the first and second calendar quarters of 2021, large eligible employers are those whose average number of full-time employees during 2019 was more than 500. For these employers, qualified wages are wages paid to an employee for time that the employee is not working for the reasons the credit is allowed.

Small eligible employers are those whose average number of full-time employees during 2019 was 500 or less. For these employers, qualified wages are the wages paid an employee whether the employee is working or not working for the reasons the credit is allowed.

How to claim the Employee Retention Credit

Employers can access the Employee Retention Credit for the first and second quarters of 2021 prior to filing their employment tax returns by reducing employment tax deposits. Small employers may request advance payment of the credit (subject to certain limits) on Form 7200, Advance of Employer Credits Due to Covid-19, after reducing deposits. In 2021, advances are not available for large employers. Further details on how to calculate and claim the employee retention credit for the first two calendar quarters of 2021 can be found in Notice 2021-23.

Questions

If you have questions about claiming the Employee Retention Credit for your business, contact us today.

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