March 2, 2021

New Employee Retention Tax Credit Guidance Issued

As Atlanta area business owners continue to manage the economic challenges presented by the persistent pandemic, federal programs such as the Paycheck Protection Program (PPP) and the Employee Retention Tax Credit (ERC), among others, have been important sources of relief.  On March 1, 2021, IRS Notice 2021-20 was released which provides guidance for claiming the ERC in the 2020 tax year. Much of the 102-page update is dedicated to a Frequently Asked Questions (FAQ) section which covers a number of topics from eligibility and credit calculation to special considerations. To help clients, prospects, and others, Wilson Lewis has provided a summary of the most important items below.

Governmental Orders

The guidance clearly defines what activities qualify as governmental orders. It includes any orders, proclamations, or decrees that limit commerce, travel, or group meetings due to COVID-19 or relate to the suspension of operations. Examples may include:

• An order from the city’s mayor stating that all non-essential businesses must close for a specified period.
• A State’s emergency proclamation that residents must shelter in place for a specified period, other than residents who are employed by an essential business and who may travel to and work at the workplace location.
• An order from a local official imposing a curfew on residents that impacts the operating hours of a trade or business for a specified period.
• An order from a local health department mandating a workplace closure for cleaning and disinfecting.

It is important to note, that any statements from officials including comments made during a press conference or in interviews, are not to be considered government orders for purposes of the ERC. In addition, disaster declarations that limit commerce, travel, and meetings, but do not relate to the suspension of operations are not a qualifying order.

Significant Decline in Gross Receipts

The guidance also outlines the period for which an employer needs to use when evaluating whether there has been a significant decline in gross receipts. An employer must identify the first calendar quarter in 2020, if any, where gross receipts are less than 50% for the same 45-day calendar quarter in 2019.  The evaluation period ends on either January 1, 2021, or the quarter that follows the first quarter in which receipts are greater than 80% for the same 2019 quarter.

This should include total sales, all amounts received for services, income from investments, and outside services. It is important to also include interest, dividends, rent, royalties, and annuities.

Qualified Healthcare Expenses

Details on what healthcare expenses qualify to be included in the credit calculation are also provided. The guidance confirms that expenses paid by both the employer and employee qualify. However, amounts that the employee paid for with after-tax contributions are ineligible.  

Substantiation Requirements

Employers are required to retain any documents that show how eligibility was determined and wages paid, including:

• Copies of governmental orders suspending the employer’s business operations.
• Any records relied upon to determine whether more than a nominal portion of operations were suspended.  
• Documents used to determine a significant decline in gross receipts occurred.
• Records of which employees received qualified wages and in what amounts.
• Documentation that shows how the amount of allocable qualified health plan expenses was determined.
• The completed Forms 7200 and employment tax returns submitted to the IRS.

Contact Us

The recently issued guidance provides the framework necessary for Atlanta businesses to determine eligibility and estimate the credit savings amount. Due to the complexity of the guidance, it is important to consult with a qualified tax advisor to determine the best path forward. If you have questions about the information outlined above or need assistance with another tax or accounting issue, Wilson Lewis can help. For additional information call us at 770-476-1004 or click here to contact us. We look forward to speaking with you soon.