Safe Harbor for Employers Claiming the Employee Retention Credit

The IRS released a new safe harbor that allows employers to exclude certain items from their gross receipts to determine whether they qualify for the Employee Retention Credit (ERC).

lease accountingUnder Revenue Procedure 2021-33, the amounts that can be excluded in calculated gross receipts are:

  • The amount of the forgiveness of a Paycheck Protection Program (PPP) Loan;
  • Shuttered Venue Operators Grants under the Economic Aid to Hard-Hit Small Businesses, Non-Profits, and Venues Act; and
  • Restaurant Revitalization Grants under the American Rescue Plan Act of 2021.

An employer can apply the safe harbor by excluding these amounts only when determining eligibility to claim the ERC for a calendar quarter. Be aware, an employer is required to consistently apply this safe harbor in determining eligibility to claim the ERC, which means excluding the amount from its gross receipts for each calendar quarter in which gross receipts for that calendar quarter are relevant to determining eligibility to claim the ERC; and applying the safe harbor to all employers treated as a single employer under the ERC aggregation rules.

The safe harbor applies for purposes of determining eligibility to claim the ERC for wages paid after March 12, 2020, and before Jan. 1, 2022. The employer must retain records to support the credit claimed, including the use of this safe harbor.

The IRS noted, an employer is not required to apply the safe harbor, and the safe harbor does not permit the exclusion of these amounts from gross receipts for any other federal tax purpose.

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