The Inside Income Service and the Treasury Division launched steering Wednesday on the worker retention tax credit score, together with steering for employers who pay certified wages after June 30, 2021, and earlier than Jan. 1, 2022, as Congress weighs a proposal to finish the tax break subsequent month to assist pay for the bipartisan infrastructure plan.
The IRS and the Treasury steering in Notice 2021-49 offers with how numerous points apply to the worker retention credit score in each 2020 and 2021, amplifying earlier steering provided earlier this 12 months in Notice 2021-20 and Notice 2021-23. The brand new discover explains modifications made by the American Rescue Plan Act of 2021 to the worker retention credit score which might be relevant to the third and fourth quarters of 2021.
The worker retention credit score was included final 12 months as a part of the CARES Act by providing tax credit to encourage extra companies to retain staff on the peak of the COVID-19 pandemic in March 2020. Nevertheless, the Paycheck Safety Program, with its promise of forgivable loans from the Small Enterprise Administration, proved to be a extra fashionable means for companies to get assist from the federal authorities. Initially, companies couldn’t benefit from each applications, however later laws handed final December allowed them to make use of each the PPP and the ERC.
Some accountants have been serving to their shoppers navigate the complexities of each applications. Jay Woods of Omega Accounting Options of Laguna Niguel, California, has been specializing in serving to small enterprise homeowners navigate the tax implications of the CARES Act and the worker retention credit score, saving them as much as $35,000 in taxes per worker.
“A variety of shoppers had no concept concerning the actuality,” he stated. “Initially of the pandemic, there have been two paths — the PPP or this worker retention tax credit score — and most of the people selected to take care of their banker as a result of it was simply simpler than coping with the IRS, and the cash got here faster. [Later] they expanded it in order that you would take each. At that time, I used to be speaking to a whole lot of my CPA mates and colleagues to see in the event that they have been doing this for his or her shoppers, and the unequivocal reply was ‘No, we’re busy. It’s tax season.’ So I simply checked out this and stated, hey, there’s going to be an amazing quantity of people that want to take a look at this to see in the event that they qualify. Now we have a giant staff, so we determined to go after it. At present we’ve recovered near $900 million for shoppers, and filed about 80 of those to this point. We’re choosing up new shoppers each week, as a result of there’s simply not sufficient of us processing this credit score versus the quantity of people that probably qualify.”
Underneath the American Rescue Plan Act, the worker retention credit score was prolonged till the top of the 12 months, however the bipartisan infrastructure invoice that the Senate is taking on this week proposes to finish the tax credit score in September as a means to assist pay for an estimated $8.2 billion of the $550 billion plan (see story). Lawmakers contend this system hasn’t been utilized by sufficient companies to justify holding it for the remainder of the 12 months.
Woods has discovered the IRS has been holding up lots of the tax credit score claims, nonetheless, because of the backlog on the resource-constrained company. “The IRS has been a little bit sluggish in processing the refunds,” he stated. “I feel they’re backlogged proper now. We’ve filed a bunch of those and a few of them are 10 weeks out, and the IRS hasn’t processed the amended 941s and never processed the refunds. We’re nonetheless hopeful that they’re going to get caught up, however so far they’re a little bit backed up on their finish.”
Type 941, the employer’s quarterly federal tax return, is one option to declare the credit score. The IRS and the Treasury stated they’re carefully monitoring the pending laws associated to the worker retention credit score and can present extra info as wanted.
The brand new discover issued by the IRS and the Treasury on Wednesday clarify among the latest modifications from the American Rescue Plan Act. The modifications embody, amongst different gadgets, (1) making the credit score obtainable to eligible employers that pay certified wages after June 30, 2021, and earlier than Jan. 1, 2022, (2) increasing the definition of eligible employer to incorporate “restoration startup companies”, (3) modifying the definition of certified wages for “severely financially distressed employers”, and (4) offering that the worker retention credit score doesn’t apply to certified wages taken into consideration as payroll prices in reference to a shuttered venue grant underneath part 324 of the Financial Support to Arduous-Hit Small Companies, Non-Earnings, and Venues Act, or a restaurant revitalization grant underneath part 5003 of the ARP.
Discover 2021-49 additionally presents steering on quite a few totally different points pertaining to the worker retention credit score for each 2020 and 2021. This steering responds to varied questions that the Treasury and the IRS have been requested concerning the worker retention credit score, together with:
- The definition of full-time worker and whether or not that definition consists of full-time equivalents;
- The therapy of suggestions as certified wages and the interplay with the part 45B credit score;
- The timing of the certified wages deduction disallowance and whether or not taxpayers that already filed an revenue tax return should amend that return after claiming the credit score on an adjusted employment tax return; and
- Whether or not wages paid to majority homeowners and their spouses could also be handled as certified wages.
Eligible employers can report their whole certified wages and the associated medical insurance prices for every quarter on a Type 941 for the interval in query. If a discount within the employer’s employment tax deposits isn’t sufficient to cowl the tax credit score, some employers can get an advance cost from the IRS by submitting Form 7200, Advance Payment of Employer Credits Due to COVID-19.