As previously published in our post earlier in the year, the change in the Employee Retention Credit (ERC) was something positive for the business owners, but it left many questions and professionals waiting for guidance. Note that during this waiting period, there were auto proclaimed experts on ERC while professionals were patiently waiting. Please, do not fall for any of these scams and search guidance from reputable professionals.

A couple of days ago, the IRS provided additional guidance for employers claiming the Employee Retention Credit (ERC). It seems that the credit in this notice is limited to qualified wages paid between March 12, 2020 and before Jan. 1, 2021.

Paychex provided a great summary “Included in the notice is guidance on how employers who received a PPP loan can retroactively claim the employee retention tax credit. In order to claim the credit for past quarters, employers must file Form 941-X, Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund, for the applicable quarter(s) in which the qualified wages were paid. The IRS includes three examples (Q&A No. 57) to highlight the process.

The IRS notice 2021-20 includes seven examples (Q&A No. 49) with scenarios of how an employer with a PPP loan determines which wages, if any, are eligible for the tax credit. The amount of wages eligible largely depends on how the qualified wages were reflected on the PPP loan forgiveness application. Qualified wages included in reported payroll costs on the forgiveness application may be utilized in certain conditions where more expenses than necessary were used to justify the loan forgiveness. In these cases, the IRS will take the minimum wage cost necessary when combined with other eligible expenses to justify loan forgiveness.

However, the IRS makes it clear that expenses eligible for PPP forgiveness that were not included in the loan forgiveness application cannot be factored in after the fact. Consequently, it’s important to ensure all eligible expenses are included on PPP loan forgiveness applications in order to maximize the qualified wages available for ERC.”

To make it more digestible for business owners, there is time to amend the 941 (filing a 941-X) for the quarter that you want to claim. We expect that in the next few weeks, there will be templates to calculate the ERC if you meet the appropriate requirements. Once you know the adjustment (amendment), then, your payroll company will file the 941-X. Note that major payroll companies across United States are working to set up process in place to file these 941-X.

Link Guidance on the Employee Retention Credit (over a hundred pages, but it list some cases which helps) – https://www.irs.gov/pub/irs-drop/n-21-20.pdf

Link Journal of Accountancy (excellent podcast on this subject) – https://www.journalofaccountancy.com/podcast/cpa-news-employee-retention-credit-updates.html

Link IRS FAQ ERC – https://www.irs.gov/newsroom/faqs-employee-retention-credit-under-the-cares-act