The Employee Retention Credit Covered in New IRS Notice

The Employee Retention Credit Covered in New IRS Notice

The Employee Retention Credit Covered in New IRS Notice

Congress bookended 2020 with two taxpayer relief packages aimed at mitigating the financial strain caused by the ongoing coronavirus pandemic. The Coronavirus Aid, Relief, and Economic Securities Act and Taxpayer Certainty and Disaster Tax Relief Act of 2020 include a number of provisions that either create or modify tax relief for individual taxpayers and businesses.

Now that we’re well into tax season, taxpayers are sorting out how to claim new tax credits, like the recovery rebate credit and the employee retention credit. Lucky for business owners who still have questions about the latter, the Internal Revenue Service this week published Notice 2021-20, Guidance on the Employee Retention Credit under Section 2301 of the Coronavirus Aid, Relief, and Economic Security Act, which also covers how receiving a PPP loan affects the credit.

What is the employee retention credit?

The employee retention credit was created by the CARES Act to provide business owners a tax incentive for keeping employees on the payroll during the COVID-19 pandemic.

“For 2020, the employee retention credit can be claimed by employers who paid qualified wages after March 12, 2020, and before January 1, 2021, and who experienced a full or partial suspension of their operations or a significant decline in gross receipts,” the IRS explains in the Notice 2021-20 announcement. “The credit is equal to 50 percent of qualified wages paid, including qualified health plan expenses, for up to $10,000 per employee in 2020. The maximum credit available for each employee is $5,000 in 2020.”

The Taxpayer Certainty and Disaster Tax Relief Act of 2020—included in the December Consolidated Appropriations Act—allows PPP recipients to claim the employee retention credit and extends the eligibility window to include “the first two calendar quarters in 2021.”

What’s in IRS Notice 2021-20?

The IRS says that Notice 2021-20 answers a number of frequently asked questions that are addressed in the notice, including:

  • Who are eligible employers?
  • What constitutes full or partial suspension of trade or business operations?
  • What is a significant decline in gross receipts?
  • How much is the maximum amount of an eligible employer’s employee retention credit?
  • What are qualified wages?
  • How does an eligible employer claim the employee retention credit?
  • How does an eligible employer substantiate the claim for the credit?

While Answer 49 in Notice 2021-20 confirms that PPP loan recipients are generally able to claim the employee retention credit, it also points out that wages claimed for the purposes of the credit will not qualify for loan forgiveness.

“An employer that received a PPP loan may claim the employee retention credit for any qualified wages paid to employees if the employer is an eligible employer that meets the requirements for the credit,” the notice reads. “However, qualified wages for which the employer claims the employee retention credit are excluded from payroll costs paid during the covered period (payroll costs) that qualify for forgiveness.”

The IRS closes the release by noting that this guidance only applies to tax year 2020, and that additional guidance for early 2021 is forthcoming—directing readers to the “Coronavirus Tax Relief for Businesses and Tax-Exempt Entities” page on for more information about CARES Act provisions that affect businesses.

Sources: IR-2021-48; Notice 2021-20 

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Filing Numbers Down; Chance of Extended Deadline Unclear

Filing Numbers Down; Chance of Extended Deadline Unclear

Filing Numbers Down; Chance of Extended Deadline Unclear

A status report from the IRS shows income tax returns are being filed at a much slower rate than last year. But unlike in 2020, an extension to the April 15 filing deadline is unclear.

The Internal Revenue Service released its Filing Season Statistics for the Week Ending Feb. 19, 2021, showing just how the COVID-19 pandemic is affecting the filing process. The statistics compare snapshots of Feb. 21, 2020, which was day 26 of the 2020 filing season, and Feb. 19, 2021, which was day eight of the 2021 filing season.

The side-by-side comparison shows individual income tax returns lagging behind 2020 by more than 30 percent. Last year at this time, nearly 50 million individual tax returns had been filed; so far this year, fewer than 35 million have been submitted to the IRS.

The upshot of the numbers seems to be that, assuming the grand totals will be roughly the same as last year’s, the IRS could be hard-pressed to process the backlog if it comes late in the season—possibly necessitating a deadline extension.

IRS is staying the course—for now

In 2020, the pandemic was cited as enough cause to automatically push back the filing deadline to July. And some in Congress have asked the IRS to do the same this year.

Members of the House Ways and Means Committee and its Oversight Subcommittee are asking the IRS to consider an extended filing season. But the man at the top, IRS Commissioner Chuck Rettig, has said the agency is currently staying the course.

“We have no present plans to extend the filing season,” Rettig told a recent congressional hearing, as reported by The “Keep in mind, it creates a lot of confusion for taxpayers. It also backs up the Internal Revenue Service.”

Nevertheless, the commissioner acknowledged that a deadline pushback is not a foregone conclusion, adding that the IRS continues to consider that option.

IRS is seeing fewer and smaller returns

The IRS comparison shows fewer returns have been filed, but the refund total is lagging behind 2020 levels as well.

While this year’s average refund is only about 8 percent lower than last year’s, the total of all individual refunds issued so far is lagging 59 percent behind the 2020 numbers. More than $117 billion in refunds had been issued by this time last year; as of Feb. 19, 2021, just $48 billion had gone out.

So far this year, the number of e-filed tax returns from tax professionals has taken a hit, lagging 2020 levels at this time by nearly 40 percent this year. Self-prepared e-filed returns are also down from last year, but by 22 percent.

One statistic hints that today’s taxpayers are searching for their own answers to tax issues. The IRS reports visits to are up by 75 percent from the same time in 2020.

Sources: “IRS Chief says says agency has no present plans to extend tax-filing season,”; “Neal, Pascrell Raise Alarms Over Slow Start to 2021 Filing Season,”

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