The IRS recently updated the eligibility requirements for the employee retention tax credit (ERTC) for 2021. This credit was introduced as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act in 2020, and it is intended to provide financial assistance to employers who are affected by the COVID-19 pandemic.
The ERTC is a refundable tax credit that allows eligible employers to receive a credit for a portion of the wages they pay to employees during the pandemic. This credit is available to both for-profit and non-profit organizations that meet certain eligibility requirements.
Under the newly-updated guidelines, the ERTC is available to employers who meet one of two eligibility criteria. First, the credit is available to employers who experienced a significant decline in gross receipts during the pandemic. Specifically, eligible employers must have seen a decline in gross receipts of 20% or more in any calendar quarter compared to the same quarter in 2019.
The second eligibility criterion is for employers who were subject to a government order to partially or fully suspend their operations during the pandemic. For these employers, the ERTC is available for wages paid during the period of suspended operations.
Additionally, the new guidelines clarify certain aspects of the ERTC. For example, the updated guidelines clarify that wages paid to majority owners and their spouses are not eligible for the credit. The guidelines also state that employers cannot claim the ERTC for wages that were paid using Paycheck Protection Program (PPP) funds that were later forgiven.
Finally, the updated guidelines provide information on how the ERTC and the PPP can be used together. Essentially, employers who receive PPP funds can still claim the ERTC for wages paid that are not covered by the PPP loan.
In conclusion, the IRS has updated the eligibility requirements for the employee retention tax credit for 2021. These changes provide clarity and guidance to employers who are looking to take advantage of this credit during the ongoing COVID-19 pandemic. Employers who meet the eligibility requirements should consider applying for the credit to help support their business during these challenging times.