IRS releases new employee retention credit info
The National Lumber and Building Material Dealers Association (NLBMDA) reports that the Internal Revenue Service (IRS) has released additional guidance on the employee retention credit, including guidance that addresses changes made by the most recent COVID-19 relief law (American Rescue Plan Act of 2021).
These changes are applicable to the third and fourth quarters of 2021.
The changes made to the employee retention credit in the American Rescue Plan Act of 2021 include:
- 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 employee retention credit does not apply to qualified wages taken into account as payroll costs in connection with a shuttered venue grant or a restaurant revitalization grant.
The guidance also responds to miscellaneous questions that the Treasury Department and the IRS have been asked about the employee retention credit that apply to both 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.
Reporting: Eligible employers will report their total qualified wages and the related health insurance costs for each quarter on their employment tax returns (generally, Form 941) 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 Form 7200, Advance Payment of Employer Credits Due to COVID-19.
