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EMPLOYEE RETENTION CREDIT - REVISED GUIDANCE


Lee B

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"On March 1, 2021, the IRS issued Notice 2021-20 providing additional guidance on eligibility for the Employee Retention Credit (ERC) and more specifically for those participating in the Payroll Protection Program (PPP). As previously discussed, the Consolidated Appropriations Act, 2021 (CAA21) extended eligibility for the Employee Retention Credit (ERC) for businesses whose PPP loan(s) had previously made them ineligible.

The March 1st notice formally addresses uncertainties in the previous IRS FAQs on the interaction between the ERC and PPP loan forgiveness. Note that this guidance only addresses PPP/ERC implications for tax year 2020. Businesses should expect additional IRS guidance for 2021.

Under this new guidance, employers who received a PPP loan cannot take the ERC for payroll costs reported on their PPP forgiveness application that were needed to support full loan forgiveness. However, qualified wages not included in PPP payroll costs or that exceed the minimum amount required for PPP forgiveness are still eligible for the ERC.

The IRS provided several examples to show how this works:

Example 1: Employer A received a $200,000 PPP loan and reported $250,000 of eligible payroll costs on its PPP forgiveness application. Employer A is deemed to have made an election out of the ERC for the $200,000 (up to the amount of the forgiveness), but the remaining $50,000 exceeding the PPP loan amount remains eligible for the ERC.

Example 2: Employer B received a $200,000 PPP loan and reported $200,000 of eligible payroll costs and $70,000 of other eligible expenses on its PPP forgiveness application. Because of the $70,000 in other eligible expenses, Employer B only needed $130,000 of its eligible payroll costs to receive full loan forgiveness. As a result, $70,000 of the qualified wages reported as payroll costs may be treated as qualified wages for purposes of the ERC."

There is also some additional clarification of some definitions etc

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