IRS releases employee retention credit guidance

The National Association of Home Builders (NAHB) reported that the Internal Revenue Service has released guidance for taxpayers claiming the employee retention credit for tax year 2020.

IRS Notice 2021-20 follows a question and answer format and covers only 2020 employee retention credit claims. The IRS plans to release additional guidance in the near future for claims arising during 2021, including changes made to the employee retention credit for 2021, the NAHB said.

The guidance covers when an employer is eligible to claim the credit, aggregation rules, qualified wages, eligible deductions, and interactions with Payroll Protection Program (PPP) loans, among other topics.

The most anticipated aspect of this guidance involves PPP loan interactions. 

When Congress established the employee retention credit, it initially prohibited PPP loan recipients from claiming it. In a key change enacted in December, Congress retroactively reversed this position, allowing PPP loan recipients who were also eligible to claim the employee retention credit to do so.

But Congress has prohibited businesses from double-dipping. This translates into wages paid for with a forgiven PPP loan may not be used to calculate the employee retention credit. 

This guidance will aid eligible taxpayers in determining how to properly calculate the employee retention credit if they also seek forgiveness for their PPP loan.

The NAHB said that it recommends that businesses or non-profit organizations seeking to determine if they qualify for the employee retention credit consult with a tax advisor. More information regarding the employee retention credit can be found here.

The full IRS Notice 2021-20 can be read here.