On March 1, the IRS released Notice 2021-20 providing guidance on the employee retention credit (ERC).
The PPP and ERC were enacted in March of 2020 as part of the CARES Act. Originally, the PPP and ERC were mutually exclusive, meaning a PPP borrower could not also claim the ERC.
However, the Consolidated Appropriations Acts, 2021 (CAA) retroactively undid this mutual exclusivity, meaning a PPP borrower can now also claim the ERC.
Partial Suspension of Operations
ERC eligibility is based on an employer experiencing either a significant decline (50% for the 2020 ERC and 20% for the 2021 ERC) in gross receipts, or by having operations either fully or partially suspended due to a government order related to COVID-19. The Notice outlines clear criteria for suspended operations:
- Gross receipts from the suspended portion of the business operations are 10% or more of the total gross receipts.
- Hours of service performed by employees in the suspended portion is 10% or more than the total hours of service.
- Modifications to business operations that result in a reduction of 10% or more in an employer’s ability to provide goods or services.
The Notice also provides other factors to consider for determining whether a modification required by a government order has impacted operations (e.g., occupancy limitations, changing format of service, etc.).
The Notice only provides guidance on the 2020 ERC, and we expect the IRS to issue additional guidance in the future specific to the ERC for 2021. In addition, while the CAA extended and expanded the ERC through June 30, 2021, there is currently legislation working its way through congress that would extend the ERC through December 31, 2021.
For an in-depth look at Notice 2021-20, visit EideBailly.com