This week, the IRS issued guidance in Notice 2021-20 that can be relied upon for the Employee Retention Credit (ERC) for 2020 and we expect similar guidance for the 2021 credit.

The credit is now available to a significantly higher number of employers, including those who received a PPP loan, whose:

1-Operations were fully or partially suspended due to a COVID-19-related governmental shutdown order, OR

2-Gross receipts dropped more than 50% in 2020 compared to the same quarter in the previous year (until gross receipts exceed 80% of gross receipts in the earlier quarter). [2021 credit drops the gross receipts threshold to only 20% compared to 2019]

Employers with more than 100 employees could receive the credit if they paid wages for employees who were NOT performing services. Those with 100 or fewer employees received the credit for wages paid, regardless if the employee was performing services. [2021 credit increases this to employers with more or less than 500 employees].

The credit is equal to 50% of eligible compensation, up to $10,000 for the year — including health care benefits — paid to an eligible employee from March 13, 2020, through December 31, 2020. [2021, the credit increases to 70% of eligible compensation, up to $10,000 per employee per quarter for the first two quarters, so potentially $14,000 credit in 2021 vs $5,000 in 2020].

Notice 2021-20 provides answers to questions such as: 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; and how does an eligible employer substantiate the claim for the credit.

Although the credit sets to expire June 30, 2021, we are expecting that Congress may extend this until December 31, 2021.