The Internal Revenue Service and the Treasury Department released guidance Wednesday on the employee retention credit.
Notice 2021-49 provides guidance on the employee retention credit for 2020 and 2021. The Notice provides additional guidance from the previously issued Notice 2021-20 and Notice 2021-23. The new notice issued by the IRS and the Treasury explains the following recent changes under the American Rescue Act:
- Making the credit available to eligible employers that pay qualified wages after June 30, 2021, and before Jan. 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 employee retention credit does not apply to qualified wages taken into account as payroll costs in connection with a shuttered venue grant under section 324 of the Economic Aid to Hard-Hit Small Businesses, Non-Profits, and Venues Act, or a restaurant revitalization grant under section 5003 of the ARP
In addition, the guidance responds to many previously unanswered questions on the employee retention credit for 2020 and 2021 including:
- The definition of full-time employee and whether that definition includes full-time equivalents;
- The treatment of tips as qualified wages and the interaction with the section 45B credit;
- The timing of the qualified wages deduction disallowance and whether taxpayers that already filed an income tax return must amend that return after claiming the credit on an adjusted employment tax return; and
- Whether wages paid to majority owners and their spouses may be treated as qualified wages.
Please contact your Schwan Financial Group advisor if you have any questions. We are here to help!