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The IRS has recently issued various additional guidance on the employee retention credit (ERC). For information about prior IRS guidance, please see our prior posts here. The following summary highlights some of the most important guidance since our last update.

1. Wages of majority owners and spouses (taxpayer loss) A longstanding issue has been whether  wages paid to a majority owner (and/or spouse) of a business may be treated as qualified wages.  Notice 2021-49 clarifies that if the majority owner of a corporation has no brother or sister (whether by whole or half-blood), ancestor, or lineal descendant, then the wages paid to the majority owner and/or the spouse are qualified wages for purposes of the ERC. These rules apply even if the relative is not an employee. For example, if a majority owner has a brother who is not an employee, the majority owner’s wages are not qualified wages. The Notice provides a number of examples to clarify this issue.

2. Alternative quarter election for determining a decline in gross receipts (taxpayer win) The Notice clarifies that employers are not required to use the alternative quarter election consistently to determine if there has been a qualifying decline in gross receipts.  For example, if an employer is an eligible employer due to a qualifying decline in gross receipts for the second quarter of 2021 compared to the second quarter of 2019, the employer could use the alternative quarter election to be an eligible employer for the third quarter of 2021. 

3. PPP loan forgiveness and inclusion in gross receipts (taxpayer win) Previously, for the decline in gross receipts test, an employer’s Paycheck Protection Program (PPP) loan forgiveness amount (as well as other pandemic relief program grant amounts) was included in the employer’s gross receipts for the quarter in which the loan was forgiven. Revenue Procedure 2021-33 permits an employer to exclude the following amounts from its gross receipts for purposes of the test (1) PPP loan forgiveness amount, (2) Shuttered Venue Operators Grant amount, and (3) Restaurant Revitalization Fund grant amount.

4. Possible Elimination of the ERC (taxpayer loss) The infrastructure legislation currently before Congress would eliminate the availability of the ERC for the fourth quarter of 2021 for most employers.

Have questions? LGT has answers.