The IRS has released guidance (Notice 2021-23) regarding the extension and enhancement of the employee retention credit (ERC) for the first and second quarters of 2021. The guidance also expands upon earlier rules (Notice 2021-20) addressing the ERC in place for 2020.
The Taxpayer Certainty and Disaster Tax Relief Act of 2020 (TCDTRA) extended the ERC for the first two calendar quarters in 2021 and made the following key changes:
- The credit rate was increased from 50% to 70% credit and the maximum eligible wages were increased from $10,000 total per employee to $10,000 per employee per quarter, for a maximum total credit of up to $14,000 per employee, rather than $5,000. The credit has since been extended by American Rescue Plan Act of 2021 through the end of 2021 for a maximum total credit of $28,000.
- The required drop in quarterly gross receipts to be eligible was reduced from 50% to 20%.
- The threshold at which eligible wages only include wages and healthcare costs paid to employees not providing services or full services (rather than all wages) was increased from 100 employees to 500 employees.
Notice 2021-23 addresses only the rules applicable to the ERC for the first and second calendar quarters of 2021. The IRS indicated that it plans to release additional guidance addressing the changes to the ERC for the third and fourth quarters of 2021.
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