Claiming the Employee Retention Credit for Q3 & Q4
Updated as of August 11, 2021 at 8:30 a.m.
On Wednesday, August 4, the IRS issued Notice 2021-49, which includes guidance on the extension and modification of the employee retention credit (ERC).
Under the new notice, the ERC may be claimed by an eligible employer for qualified wages paid in the third and fourth calendar quarters of 2021.
An eligible employer is an employer carrying on a trade or business:
- Whose trade or business’s operation is fully or partially suspended due to orders from a governmental authority limiting commerce, travel, or group meetings due to COVID-19;
- That experiences a decline in gross receipts (as defined in Notices 2021-20 and 2021-23); or
- Is a recovery startup business.
For the third and fourth quarters of 2021, eligible employers claim the credit against the employer’s share of Medicare tax rather than against the employer’s share of Social Security tax. The Railroad Retirement Tax Act still applies here.
Also, in Q1 and Q2 the maximum ERC limit was 70% of up to $10,000 of an employee’s qualified wages per calendar quarter (i.e., $7,000). That still applies. But there’s now an additional, separate credit limit of $50,000 per calendar quarter for recovery startup businesses (after application of the $10,000 wage limit).
There were also several, miscellaneous concerns addressed in the update, including:
- Wages paid to a majority-owner employee and/or the individual’s spouse.
- Definition of a full-time employee for purposes of the ERC
- Tip treatment as qualified wages
- Alternative quarter election in relation to a decline in gross receipts
- Calculating gross receipts in relation to Safe Harbor
This is a complicated and changing credit. If you have any questions about these changes or want to discuss how it impacts your company, please give us a call. We’re here to help you sort through the details.