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DC Tax Flash: IRS Instructs on Claiming Employee Retention Credit

Tax Alert

The Internal Revenue Service (IRS) today issued Notice 2021-20, which provides guidance to employers on the Employee Retention Credit (ERT) for qualified wages paid in 2020.

In general, the ERT functions as a refundable tax credit against certain employment taxes equal to half of the qualified wages paid by an eligible employer. It was expanded and extended for six months into 2021 by the year-end Consolidated Appropriations Act, 2021. Today's guidance covers only wages paid in 2020. The IRS intends to issue additional guidance on the credit for wages paid in 2021.

Today's guidance aims to help employers determine their eligibility for the ERT, "largely incorporating the concepts set forth in the Frequently Asked Questions (FAQs) posted on the IRS website and answering additional questions related to changes made by the Relief Act not addressed in the FAQs," the IRS explains.

More specifically, the IRS notes that the guidance clarifies:

  • When and how employers that received a PPP loan can claim the employee retention credit for 2020
  • 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
  • Wow does an eligible employer substantiate the claim for the credit

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