Guidance for Claiming Employee Retention Credit in 2021

by | Sep 16, 2021

The IRS has issued guidance for employers claiming the employee retention credit enacted by the American Rescue Plan Act of 2021 (ARP), which provides a credit for wages paid after June 30, 2021, and before January 1, 2022. The guidance amplifies previous notices which addressed the employee retention credit created by the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), then extended and expanded under the Consolidated Appropriations Act, 2021.

In general, eligible employers can claim a refundable employee retention credit against the employer share of Social Security tax equal to 70 percent 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. Under the guidance, these limits continue to apply in the third and fourth calendar quarters in 2021.

The guidance explains changes made to the employee retention credit for the third and fourth calendar quarters of 2021, including:

  • making the credit available to eligible employers that pay qualified wages after June 30, 2021, and before January 1, 2022;
  • expanding the definition of eligible employer to include “recovery startup businesses”;
  • modifying the definition of qualified wages for “severely financially distressed employers”; and
  • providing that the credit does not apply to qualified wages taken into account as payroll costs in connection with a shuttered venue grant under the Economic Aid to Hard-Hit Small Businesses, Non-Profits, and Venues Act, or a restaurant revitalization grant under the ARP.

Recovery Startup Businesses

A “recovery startup business” is an employer:

  • that began carrying on any trade or business after February 15, 2020;
  • for which the average annual gross receipts of the employer for the three tax year period ending with the tax year that precedes the calendar quarter for which the credit is determined does not exceed $1,000,000; and
  • that is not otherwise an eligible employer due to a full or partial suspension of operations or a decline in gross receipts.

For an eligible employer that is a recovery startup business, the amount of the credit allowed for each of the third and fourth calendar quarters of 2021 cannot exceed $50,000.

Qualified Wages

The rules for determining the average number of full-time employees continue to apply in the third and fourth calendar quarters of 2021. However, the Code provides a different rule for qualified wages paid by “severely financially distressed employers.” For the third and fourth calendar quarters of 2021, an eligible employer with gross receipts that are less than 10 percent of the gross receipts for the same calendar quarter in calendar year 2019 (or 2020, if the employer was not in existence in 2019) is a severely financially distressed employer. For the third and fourth calendar quarters of 2021, a severely financially distressed employer that is a large eligible employer may treat all wages paid to its employees during the quarter in which the employer is considered severely financially distressed as qualified wages.

Reporting

Eligible employers will report their total qualified wages and the related health insurance costs for each quarter on their employment tax returns for the applicable period. If a reduction in the employer’s employment tax deposits is not sufficient to cover the credit, certain employers may receive an advance payment from the IRS by submitting an advance form.

Contact Us

Please call our office, your business may have an opportunity to take advantage of the expansion of the employee retention credit in the third and fourth quarters of 2021.

Bake’s Takes Volume 1, Issue 7

Dive into the world of strategic consulting with Jonny Baker’s “Bake’s Takes”, featuring a careful selection of insightful reads from the fields of team dynamics, conflict resolution, and decision-making. This edition explores the true meaning of teamwork, the importance of healthy conflict in management, and introduces the innovative “RAPID” decision-making method. A rich resource for leaders seeking to create vision, alignment, and execution.

Are you a CEO or a Firefighter?

Are you a business owner stuck in the firefighting mode, rushing from one crisis to another? Discover how KHA Strategic Consultants can help you transition from a reactive approach to proactive strategic planning.

Can You Attract Top Talent?

In the battle for top talent, 75% of companies struggle to fill positions, giving the onus to firms to differentiate themselves. This article outlines four key attributes successful firms possess.

Bakes Takes Volume 1, Issue 6

Explore the top three reads recommended by KHA Consulting’s Jonny Baker in this month’s Bake’s Takes. From understanding how new CEOs establish trust, to leveraging your strengths for greater impact, and spotting talent in the modern era, these articles offer essential insights for today’s leaders. Don’t miss out on these refreshing perspectives designed to push your thinking and enhance your leadership effectiveness.

Accounts Payable Strategies and Best Practices

Efficient accounts payable management isn’t just about paying bills—it can directly impact your business’s financial health and growth. From digital tools for invoice processing to robust internal controls for fraud prevention, this article covers everything you need to know.

The Unseen Complexities of Lease Accounting

Discover the complexities of lease accounting and the crucial role of a professional CPA in navigating these challenges in this video. Learn about the new standards of ASC 842, how it’s changing how leases are recorded, and why it’s so important to get it right.

Action Produces Results

Well-intentioned plans often fail but a shift in mindset can improve business operations. KHA is for leaders yearning for genuine transformation.

IRS Reopens Voluntary Disclosure Program for Erroneous ERC Claims

The IRS is reopening a Voluntary Disclosure Program related to improper claims for the Employee Retention Credit (ERC). Simultaneously, it continues to increase audits and enforcement action related to these claims. IRS is also in the process of reclaiming up to 30,000 credits already paid.

Rowing in Different Directions?

The success of any team lies in its alignment, be it in business or on a boat. Learn how KHA’s advisors can help your team function like a well-coordinated crew.

Bakes Takes Volume 1, Issue 5

Jonny Baker’s ‘Bake’s Takes’ for August 2024 brings together three insightful reads that every leader should explore. Learn about the value of project management, the importance of identifying and developing core competencies, and the art of effective networking. These articles will provide you with the tools and insights required to excel in today’s challenging business environment.